Intellectual Property Law

Cross-Border Trade Secret Protection: New Rules for Jurisdiction and Governing Law in Japan

Japanese Attorney at Law - Bengoshi L.L.

• 8 min read
Slide mapping Japan’s 2023 cross-border trade-secret reforms: expanded jurisdiction, optional Japanese governing law, and confidentiality tools in litigation.

TL;DR

  • June 2023 amendments clarified that Japanese courts have jurisdiction over overseas trade-secret misappropriation if the plaintiff’s economic loss occurs in Japan.
  • The Act on General Rules for Application of Laws (Hōrei) now lets plaintiffs choose Japanese law for claims against Japan-based defendants, even if the theft happened abroad.
  • Courts may order preservation, evidence production and in-camera hearings to protect confidential information during litigation.

Table of Contents

  • The Challenge of Cross-Border Trade Secret Litigation Before the Reforms
  • New Provision: International Jurisdiction (UCPA Article 19-2)
  • New Provision: Governing Law / Extraterritorial Application (UCPA Article 19-3)
  • Interpreting the New Rules: Key Concepts and Potential Issues
  • Implications for International Businesses
  • Conclusion: A Step Towards Stronger Cross-Border Enforcement

In today's interconnected global economy, trade secrets represent critical assets for businesses, yet protecting them across borders presents significant legal challenges. Misappropriation can occur anywhere, often involving complex chains of events spanning multiple countries. Japan, recognizing the increasing importance of safeguarding valuable business information in international contexts, introduced specific provisions in its 2023 amendments to the Unfair Competition Prevention Act (不正競争防止法, Fusei Kyōsō Bōshi Hō, hereafter "UCPA") to clarify court jurisdiction and the application of Japanese law to certain types of cross-border trade secret misappropriation. These changes, effective April 1, 2024, aim to provide more robust recourse for businesses whose Japan-managed trade secrets are compromised by actions abroad.

The Challenge of Cross-Border Trade Secret Litigation Before the Reforms

Prior to the 2023 amendments, pursuing legal action in Japan for trade secret misappropriation that occurred primarily outside the country faced considerable hurdles:

  1. Establishing Jurisdiction (国際裁判管轄, kokusai saiban kankatsu): Japanese courts generally assert jurisdiction over tort claims (which include trade secret misappropriation) if the wrongful act occurred in Japan or if the results of the wrongful act occurred in Japan (Code of Civil Procedure, Art. 3-3(viii)). Determining the "place where the results occurred" (kekka hassei chi) in trade secret cases involving foreign use or disclosure was often ambiguous and contentious. If a secret stolen from Japan was only used in manufacturing or sales operations overseas, was the "result" (e.g., lost profits for the Japanese company) deemed to have occurred sufficiently in Japan to establish jurisdiction? The lack of clear rules created uncertainty.
  2. Determining Governing Law (準拠法, junkyohō): Even if a Japanese court accepted jurisdiction, deciding which country's law should apply to the substance of the claim was governed by Japan's Act on General Rules for Application of Laws (法の適用に関する通則法, Hō no Tekiyō ni Kansuru Tsūsokuhō). For torts, this law generally points to the law of the place where the results of the wrongful act occurred (Article 17). Again, pinpointing this location when the misappropriation spanned borders was difficult. If the primary harmful use or disclosure occurred abroad, foreign law might apply, potentially offering different standards of protection or remedies than Japanese law. While exceptions existed (e.g., applying the law of the place manifestly more closely connected, Article 20), the default rules often led away from applying the Japanese UCPA to extraterritorial conduct.

This legal uncertainty could deter Japanese companies from pursuing litigation against foreign misappropriation or force them into potentially less favorable foreign courts. The 2023 amendments sought to address these specific challenges for certain core types of trade secret theft linked to Japan.

New Provision: International Jurisdiction (UCPA Article 19-2)

The revised UCPA introduces Article 19-2, which establishes a specific basis for Japanese courts to exercise jurisdiction over civil lawsuits (seeking injunctions, damages, etc.) concerning certain acts of trade secret misappropriation, even if those acts occur outside Japan.

Key Conditions for Jurisdiction under Article 19-2:

To establish jurisdiction under this new provision, several cumulative conditions must be met:

  • Trade Secret Holder: The trade secret (営業秘密, eigyō himitsu) must belong to a holder that conducts business in Japan (日本国内において事業を行う営業秘密保有者). This covers Japanese companies as well as foreign companies with substantial business operations within Japan.
  • Management in Japan: The trade secret must be one that is "managed in Japan" (日本国内において管理されているもの). This crucial element links the secret itself geographically to Japan. (The interpretation of "managed in Japan" is discussed below).
  • Specific Type of Unfair Competition: The lawsuit must concern acts of unfair competition falling under specific subsections of Article 2(1) of the UCPA:
    • Art. 2(1)(iv): Acquiring a trade secret by improper means (theft, fraud, coercion, etc.).
    • Art. 2(1)(v): Using or disclosing a trade secret acquired through improper means (or subsequently acquired with knowledge/gross negligence of prior improper acquisition).
    • Art. 2(1)(vii): Using or disclosing a trade secret, obtained legitimately but under a duty to keep it secret, for unfair commercial advantage or to cause injury (e.g., by an employee or business partner).
    • Art. 2(1)(viii): Using or disclosing a trade secret acquired through wrongful disclosure (or subsequently acquired with knowledge/gross negligence of prior wrongful disclosure).
  • Excluded Acts: Notably, Article 19-2 does not apply to acts falling under subsections (vi), (ix), or (x) of Article 2(1). These generally cover situations where a party acquires a trade secret without knowledge (or gross negligence) of prior misappropriation at the time of acquisition, or subsequent acts like transferring/importing products embodying a misappropriated secret. For these types of acts, jurisdiction must still be established under the general rules of the Code of Civil Procedure.
  • Exemption for Solely Foreign Use: Jurisdiction under Article 19-2 is excluded if the trade secret is used "solely for business outside Japan" (専ら日本国外において事業の用に供される). This acts as a defense or limitation.

Nature of Jurisdiction: Article 19-2 provides a basis for concurrent jurisdiction. It does not prevent parties from litigating in another country if jurisdiction exists there, nor does it override valid jurisdiction agreements (Code of Civil Procedure, Art. 3-7). It serves as an additional ground for Japanese courts to hear cases involving the specified types of cross-border misappropriation linked to secrets managed in Japan.

New Provision: Governing Law / Extraterritorial Application (UCPA Article 19-3)

Complementing the jurisdictional rule, the newly added Article 19-3 addresses the governing law for the same categories of cross-border trade secret misappropriation.

Key Features of Article 19-3:

  • Application of Japanese UCPA: It mandates that the substantive provisions of the Japanese UCPA – specifically Chapters 1 (General Provisions, including definitions), 2 (Civil Remedies like injunctions and damages), and 4 (Miscellaneous Provisions) – shall apply to the acts of unfair competition specified (the same types as in Art. 19-2: acts under Art. 2(1)(iv), (v), (vii), or (viii)) when these acts are committed outside Japan.
  • Conditions: The conditions for this mandatory application of Japanese law mirror those for jurisdiction under Article 19-2: the trade secret must belong to a holder conducting business in Japan, the secret must be managed in Japan, and the act must fall under the specified UCPA subsections. The same exemption for secrets used solely for foreign business also applies here.
  • Mandatory Applicable Law: Article 19-3 functions as a mandatory applicable law rule (強行的適用法規, kyōkōteki tekiyō hōki). This means that if the conditions of Article 19-3 are met, Japanese UCPA applies regardless of what law would normally be designated by Japan's standard choice-of-law rules (i.e., the Act on General Rules for Application of Laws). It overrides the default principle that might point to the law of the place where the infringing act or its results occurred if that place is outside Japan.

Interpreting the New Rules: Key Concepts and Potential Issues

While these new provisions offer greater clarity, some terms and their application raise interpretive questions that will likely be resolved through future court decisions and practice:

  • "Managed in Japan": This is a critical new requirement. What constitutes "management" within Japan? Does it require physical storage of data or documents in Japan, or is control and access management from Japan sufficient, even if data resides on servers located overseas (e.g., cloud storage)? Legislative history suggests this wording might have been chosen deliberately, potentially implying a need for some tangible management activity within Japan, contrasting with broader phrasing used in the UCPA's criminal provisions aimed at clarifying coverage for cloud-stored secrets. This ambiguity needs clarification. If interpreted narrowly, it could limit the provisions' effectiveness in the age of cloud computing.
  • "Solely for business outside Japan": The scope of this exemption is also unclear. What if the foreign use indirectly harms the Japanese market (e.g., by enabling lower-priced competing imports later, or damaging global reputation)? How direct must the connection to Japanese business be to fall outside the "solely foreign" exemption? The burden of proving this exemption likely falls on the defendant.
  • Excluded Acts (Art. 2(1)(vi), (ix), (x)): The deliberate exclusion of these downstream acts from the new jurisdictional and governing law rules means that pursuing remedies in Japan against parties who acquired secrets innocently (but continued use after notice) or who merely dealt in products made using stolen secrets will still rely on establishing jurisdiction and governing law under the pre-existing, more ambiguous rules.
  • Establishing Jurisdictional Facts: Article 19-2 ties jurisdiction to substantive elements of the claim (e.g., existence of a trade secret, management in Japan, commission of a specific type of unfair act). How will courts handle the proof required to establish jurisdiction without prematurely delving into the full merits of the case? Will a prima facie showing suffice, or will a higher standard be needed at the jurisdictional stage? This procedural aspect requires clarification.

Implications for International Businesses

The introduction of UCPA Articles 19-2 and 19-3 has tangible consequences for companies involved in cross-border activities related to Japan:

  • Enhanced Protection for Trade Secret Holders: For Japanese companies, or foreign companies that centralize R&D or manage key trade secrets within their Japanese operations, these amendments provide a stronger legal basis to combat certain types of misappropriation occurring abroad. They can now more confidently file suit in Japanese courts and seek remedies under the familiar Japanese UCPA, avoiding the uncertainties and potential disadvantages of litigating under foreign law in foreign courts.
  • Increased Litigation Risk for Foreign Actors: Conversely, companies operating outside Japan must be more vigilant. If they acquire or use trade secrets that are "managed in Japan" and belong to a business operating in Japan, through acts covered by the specified UCPA subsections (e.g., hiring employees from a Japanese competitor who bring secrets, using information improperly disclosed by a Japanese business partner), they now face a heightened risk of being sued in Japan under Japanese law, even if their operations are entirely overseas. This necessitates robust internal controls and due diligence regarding the origin and handling of sensitive information potentially linked to Japan.
  • Strategic Litigation Choices: The new rules add another layer to strategic decisions in cross-border disputes. Plaintiffs may now have a clearer option to litigate in Japan, while defendants facing such suits need to understand the implications of potentially defending a case under Japanese substantive law based on these new provisions. Factors like the location of evidence, enforceability of judgments, and comparative advantages of legal standards will influence forum selection.

Conclusion: A Step Towards Stronger Cross-Border Enforcement

The 2023 amendments adding Articles 19-2 and 19-3 to Japan's Unfair Competition Prevention Act represent a targeted effort to address the challenges of protecting valuable trade secrets in an increasingly borderless digital world. By establishing clear jurisdictional grounds and mandating the application of Japanese law for specific types of extraterritorial misappropriation linked to secrets managed in Japan, the reforms aim to provide more effective recourse for affected businesses and deter cross-border industrial espionage targeting Japanese innovation.

While interpretive questions remain regarding key terms like "managed in Japan" and the precise scope of the "solely foreign use" exemption, these provisions undeniably strengthen Japan's legal toolkit for combating international trade secret theft. Businesses operating globally with connections to Japan—whether as potential plaintiffs or defendants—must integrate awareness of these new rules into their IP protection strategies, compliance programs, and cross-border litigation planning. The effectiveness of these provisions will ultimately be shaped by how they are interpreted and applied by Japanese courts in the coming years.