Japan Unlikely to Alter New Smartphone Law Despite External Influence
Japan has passed a groundbreaking piece of legislation, the Act on Promotion of Competition for Specified Smartphone Software, also known as the Mobile Software Competition Act (MSCA). This law, a supplement to the country's Antimonopoly Act, aims to foster competition in the markets for mobile operating systems, app stores, browsers, and search engines. The Act specifically targets major tech companies, referred to as Designated Providers, who now face a series of prohibitions and obligations.
The MSCA introduces a range of major prohibitions. These include preventing unfair or discriminatory treatment of third-party app developers, banning restrictions on alternative app stores, and prohibiting measures that prevent third-party developers from accessing mobile OS functions. The Act also bars restrictions on the use of alternative payment platforms and external links, directing users outside the app.
For U.S.-based tech companies like Apple and Google, who are explicitly identified as Designated Providers in the Japanese market, the implications are substantial. They now face direct regulatory requirements to open their ecosystems to more competition and interoperability. Key implications include greater third-party access, reduced restrictive practices, and a balancing act between cybersecurity and competition.
Japan's approach sets a significant precedent in the global push for digital platform regulation. By mandating interoperability and prohibiting anti-competitive practices, Japan aims to spur innovation, lower barriers for local app developers, and reduce consumer prices. However, the law also recognises the importance of cybersecurity, allowing platform operators to maintain certain restrictions when justified by genuine security concerns.
This "dual focus" on competition and security is a distinctive feature of Japan’s regulatory philosophy, potentially serving as a model for other jurisdictions considering similar legislation. Japan’s legislation joins a wave of global regulatory efforts, such as the EU’s Digital Markets Act and the UK’s Digital Markets, Competition and Consumers Act, targeting the market power of "gatekeeper" platforms. However, Japan’s inclusion of cybersecurity exceptions and its tailored guidelines for implementation provide a unique framework that other countries may study as they refine their own digital competition laws.
Critics have accused the Act of seemingly targeting specific companies rather than establishing uniform rules across all platforms. However, the legislation is based on the results of a series of surveys, including those on online shopping in 2019, digital advertising in 2021, and mobile operating systems in 2022. The strategic vision of the legislation extends beyond immediate fee reductions to fundamentally reshaping Japan's digital ecosystem.
The Act on Promotion of Competition for Specified Smartphone Software is being handled by Baker McKenzie. The new law aims to create new opportunities for Japanese app developers and foster competition in a concentrated sector. The expectation is that the new act will give rise to new app stores, increasing opportunities for app developers and potentially reducing the fees charged by current app store operators. The JFTC is likely to be even more cautious in levying fines, employing a cautious and evidence-based approach to enforcing the new act.
However, the legislation has drawn international scrutiny, including a potential trade investigation from the United States. Despite this, Japanese regulators are unlikely to alter their approach significantly in response to international pressure. The Act on Promotion of Competition for Specified Smartphone Software is set to challenge the dominance of major tech companies over smartphone app marketplaces and payment systems.
The Act on Promotion of Competition for Specified Smartphone Software, or MSCA, introduces regulations aimed at preventing major tech companies, referred to as Designated Providers, from implementing measures that restrict the access of third-party developers to mobile OS functions or restrict the use of alternative payment platforms and external links, thereby promoting competition in the technology sector.
The MSCA's regulations, such as the prohibition of unfair or discriminatory treatment of third-party app developers and the banning of restrictions on alternative app stores, set a precedent for digital platform regulation globally, aligning with other jurisdictions' efforts like the EU's Digital Markets Act and the UK's Digital Markets, Competition and Consumers Act.
