Newsletter

2019 Amendments to the Pharmaceuticals and Medical Devices Act and Their Impact on Companies

Newsletter (November 2020) │  Legal

I. Introductory

On December 4, 2019, the “Act on Securing the Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices” (the “Act”) was amended (“Amended Act”).  The Amended Act is scheduled to be enforced on April 1, 2020, September 1, 2020, August 1, 2021 and December 1, 2022, depending on the item being amended under the Amended Act.  We have set out below a brief summary of the four key amendments under the Amended Act, together with their impact on pharmaceutical companies.

 

II. Key amendments under the Amended Act

1.Improving a company’s system to have a more secure, expedient, and efficient development of and post-marketing processes for pharmaceuticals and medical devices

 

In order to improve a company’s system to implement the safety, speed, and efficiency of the development and marketing of pharmaceuticals and medical devices, the Amended Act includes the following amendments:

 

(1) An expedited approval procedure for innovative pharmaceuticals and medical devices (Sakigake Examination System) (enforcement date: September 1, 2020)

As a matter of practice under the current Act, certain pharmaceuticals and medical devices are subject to priority examination for approval by the Ministry of Health, Labour and Welfare (MHLW). The Amended Act puts this practice into statutory form by providing the conditions under which certain pharmaceuticals and medical devices would fall under the Sakigake Examination System (i.e., the “Sakigake Pharmaceuticals” (sakigaketeki iyakuhintou) and the “Specific Usage Pharmaceuticals” (tokutei youto iyakuhintou)).

 

(2) A conditional approval system for pharmaceuticals and medical devices which require a long clinical trial period (Conditional Early Approval System) (enforcement date: September 1, 2020)

The same as (1) above, the Amended Act puts the current practice into statutory form by clarifying that approval applications for certain pharmaceuticals and medical devices can be submitted without validating clinical study data.

 

(3) Introduction of a notification procedure for the change in manufacturing methods pursuant to a post-approval change management protocol (PACMP) (enforcement date: August 1, 2021)

The new procedure enables companies to implement certain changes pursuant to PACMP without waiting for standard longer examination by MHLW and therefore is expected to shorten the authorization process for such changes.

 

(4) Introduction of an approval examination system for high-tech medical devices (enforcement date: September 1, 2020)

This amendment enables the continued and frequent improvement of high-tech medical devices (e.g. medical devices using artificial intelligence (AI)) without obtaining authorization from MHLW for individual improvements.

 

(5) Change the principle way of providing “package inserts” so that they should be provided by electronic methods (enforcement date: August 1, 2021)

 

(6) New obligation to display bar codes on the packaging of pharmaceuticals (enforcement date: December 1, 2022)

 

(7) Change to (i) GMP/GCTP and (ii) QMS examination system to relax companies’ obligations in certain cases (enforcement date for (i) August 1, 2021 and for (ii): September 1, 2020)

 

Pharmaceutical companies, medical device companies and regenerative medicine manufacture companies should be able to take advantage of these amendments in their business strategy for their development/approval processes and post-marketing changes to their products.  Further, companies should establish a new operation system to comply with (5) and (6) above prior to the enforcement of the Amended Act.

 

2.Amendments in respect of the operations of pharmacists and pharmacies

The Amended Act includes the following amendments.  These amendments should be noted by companies which operate a pharmacy business as part of their operations.

 

(1) New obligations on pharmacists and pharmacy operators (enforcement date: September 1, 2020)

Obligations are newly imposed on pharmacists to: (i) understand the patient’s usage status of medicine; (ii) provide instructions on the use of drugs to patients; and (iii) make efforts to provide information on patients’ drug use to doctors at other medical facilities (please note that, depending on the status of the patient’s decease, pharmacists need to perform these obligations on a continuous basis, not only at the time of filling a prescription).  Pharmacy operators are obliged to ensure their pharmacists comply with the above obligations.

 

(2) Introduction of an approval system for pharmacies cooperating with the regional community and specialized medical institutions (enforcement date: August 1, 2021)

 

(3) Introduction of providing instructions on the use of drugs through a video call (enforcement date: September 1, 2020)

It will be important to follow the MHLW ministerial ordinances which will be established, in order to understand the detailed requirements for this new video instruction by pharmacists.

 

3.Establishment of a legal compliance system

For the establishment of a legal compliance system, the Amended Act includes the following amendments:

 

(1) New obligation on license holders to establish a legal compliance system relating to pharmaceutical affairs (“Pharmaceutical Compliance System Obligation”) (enforcement date: August 1, 2021)

The introduction of the Pharmaceutical Compliance System Obligation would have an impact on the governance system of: (i) companies which market, manufacture or sell pharmaceuticals, medical devices, regenerative medicine products, quasi-pharmaceutical products and cosmetics (collectively, the “Healthcare Products”); (ii) pharmacies; (iii) store retailers, non-store retailers, and wholesale sellers of Healthcare Products; (iv) blood drawing business operators; and (v) sellers, lease operators and repairers of specially-controlled medical devices.  For detailed information on this new obligation, please refer to our newsletter on the draft guidelines to the Amended Act published on August 11, 2020.[1]

 

(2) Introduction of new penalties against false or misleading advertising (enforcement date: August 1, 2021)

Under the Amended Act, if a company advertises their Healthcare Products by a false or misleading advertisement in terms of its name, manufacturing method, efficacy, effect or performance, a penalty will be imposed based on the following calculation formula:

 

This penalty system is unique in that, unlike under the Antitrust Law and the Financial Instruments and Exchange Act, the Amended Act provides cases where the penalty is not imposed on the violator, such as the case where their business license has been revoked.  The Amended Act also provides: (i) a reduction of the penalty for self-reported cases; and (ii) an exemption for cases where (a) five years have passed since the company stopped its false or misleading advertising or (b) the total sales amount is less than 50 million JPY.

 

Advertising regulations and monitoring by authorities in the health care industry are becoming increasingly strict year by year, and therefore, companies need to establish a monitoring system for advertising to ensure that they do not violate the strict regulations.

 

4.Other

Furthermore, the Amended Act includes the following amendments:

 

(1) Establishment of an MHLW official committee for the evaluation and monitoring of Healthcare Products (enforcement date: September 1, 2020)

MHLW will establish a committee to: (i) ensure the safety of Healthcare Products; and (ii) evaluate and monitor the implementation status of measures to prevent harmful side effects of Healthcare Products.

 

(2) Relaxation of statutory restrictions on blood drawing (enforcement date: September 1, 2020)

The Amended Act, together with the amendments to the act on a stable supply of safe blood products (the “Blood Law”), expands the scope of legitimate blood drawing by allowing blood drawing for the purpose of using for “items to be used for the research and development of Healthcare Products, and other items which will contribute to the improvement of the quality of medical care or health and hygiene” (collectively, the “R&D Items”).   Currently, this expansion would legalize the creation of iPS cardiomyocytes from blood for the purpose of research and development of medicines.  The detailed requirements to fall under the R&D Items will be set out in the MHLW ministerial ordinances in the future, which would have an impact on a pharmaceutical company’s business strategy.  Furthermore, it should be noted that the revised Blood Law newly requires manufacturers of blood products and the plasma of blood products to provide safety information to marketing authorization holders of blood products.

 

III. Conclusion

The Amended Act includes a wide range of amendments that will have much impact on the governance system and business strategy of pharmaceutical companies.  It would also be important to understand the details to be provided in the future MHLW ministerial ordinances and other regulations.

(28 November 2019 as updated on 9 December 2019, 11 March and 11 May 2020)

 

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Sonderhoff & Einsel provides legal advice for Pharmaceuticals and Medical Devices Act (PMD Act) including advising on healthcare-related regulations, contracts, negotiations with MHLW, internal training, and dispute resolution.

 

The information in this newsletter is provided as general information and is not meant to be provided as specific professional advice. If you have any specific questions, please contact Ayuko Nemoto().

 

Sonderhoff & Einsel Law and Patent Office

Shin Marunouchi Center Building. 18th Floor

1-6-2 Marunouchi, Chiyoda-ku, Tokyo 100-0005

Tell +81-3-5220-6500

Fax +81-3-5220-6556

http://se1910.com/

[1]  “Publication of Amended Pharmaceuticals and Medical Devices Act – Draft Guidelines Regarding Legal Compliance by MAH and Manufactures”(https://se1910.com/newsletters/20200817en/#_ftnref1)

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“Q&A on the Amended Road Transportation Vehicle Act – Introduction of Vehicle Software Update Regulation”

Newsletter (October 2020) │  Legal

Introduction

As part of a series of legislative revisions to address the practical introduction of “Level 3”[1] automated driving, the Road Transportation Vehicle Act (the “Act”) will introduce a regulation for “specific modification” of vehicle software through updates using telecommunication methods. It is anticipated that update by wireless telecommunications called Over-The-Air (OTA) will be actively utilized in the future, and the introduction of this regulation will have a considerable impact on related businesses. Since it is approximately one month until the enforcement date (see A14) of the amended Act, this newsletter provides a comprehensive discussion, in a Q&A format, regarding the regulations based on, among others, the relevant Ministerial Ordinance, Notification, and Administrative Rules for Examination.

 

 

Q1         What is the purpose of the new regulations?

A1         With the advancement of automotive technology in recent years, it has become possible to easily make changes and additions to the performance and functions of the software of large fleets of vehicles by updates of software installed in electronic control devices using telecommunication methods (both wireless and wired) after the vehicle has been purchased by its owner. In light of this, in harmony with global discussions especially in the United Nations European Economic Commission (UN/ECE) “World Forum on Automotive Standards Harmonization” (“WP29”), the Government of Japan planned to create a legal system to ensure that appropriate software updates and cyber security are being implemented during the use of a vehicle.

 

Q2         What were the previous rules for updating vehicle software?

A2         The previous rules did not focus on vehicle modifications due to the alteration of vehicle software including upgrades using telecommunication during the use phase. Instead, such modifications were regulated as a part of the rules regarding modifications in general and examining compliance with safety standards applicable to vehicles (i.e., technological standards for safety, pollution prevention and other environmental protection stipulated by the government).

 

Q3         What is the new approval requirement for the specific modifications?       

A3         The new regulations will introduce an approval requirement (see A6) in which the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) will examine whether the company’s organizational structure and processes related to its software updates and cyber security are compliant with prescribed standards. This approval will be required when a company’s software update falls under the category of a “specific modification” (see A5). Further, it imposes obligations, among others, to maintain such  organizational structure and processes even after receiving approval (see A12).

 

In addition to the compliance with safety standards for vehicles that was formerly required, the new regulations also require compliance with standards related to the organizational structure and processes. The regulations introduce a process approval in addition to vehicle type approval.

 

Further, an approval to specific modifications should, in principle, be obtained for each alteration in software.[2] In addition, it is necessary to obtain an approval for each vehicle that is modified by alteration of the software pertaining to the application, while it is also possible to obtain the approval for each vehicle type that has already been designated and approved.[3]

 

Q4         Are “Level 2” automated vehicles also subject to the approval regulations?

A4         In a series of recent legislative revisions, Autonomous Driving Devices (ADD)[4] that enable Level 3 autonomous driving was added as a device which is subject to the safety standards. However, with the new regulations, the modification of a vehicle by alteration of the software installed to a device other than an ADD would also be considered as a specific modification. Thus, the application of these regulations is not limited to Level 3 or higher autonomous vehicles, and even making a modification to vehicles with Advanced Driver Assistance System (ADAS) by software alteration that enable Level 2 autonomous driving would be covered by under the regulations and prior approval would be required. Provided, however, that a vehicle without ADD is less regulated in application of these regulation (Q7(2), Q12).

 

Q5         What are the specific modifications that would require an approval?

A5         The amended Act defines the following activities as specific modifications that require an approval.[5]

 

(i)      Modification of a vehicle due to alteration of software installed in an ADD or other device which is stipulated in the Ministerial Ordinance of MLIT where there is a risk that the vehicle will not comply with the security standards unless the software for the vehicle modification is appropriate in accordance with the method of using telecommunication lines and other methods stipulated by the Ministerial Ordinance of MLIT (“Direct Modification”).

(ii)     The activity of providing software for vehicle modification to a vehicle user or other person by the method of using a telecommunication line or by any other method specified by the Ministerial Ordinance of MLIT for the purpose of having such user perform the modification prescribed in item 1 above (“Indirect Modification”).

 

The activity mentioned in (i) above means the alteration of the vehicle software by means of telecommunication that changes the function of each device (engine, handle, brake, etc.) of which device is regulated by the safety standards in the Ministerial Ordinance; unless it is obvious that such vehicle after modification complies with the safety standards. Therefore, software updates aimed at enhancing “infotainment” functions, such as browsing services, will not apply unless there is a change in the function of each such device.

 

The activity mentioned in (ii) above means the activity of providing software by using telecommunications or distributing electronic recording media (CD-ROM, etc.) to users, Maintenance Repair and Overhaul (MRO) service providers, etc., for the purpose of causing them to perform the activity mentioned in (i) above.

 

Q6         What are the requirements to obtain an approval for a specific modification?

A6         The amended Act requires the applicant to comply with the following criteria to obtain approval (Article 99-3, para. 3).

 

(i)      The applicant must conform to the standards specified by MLIT with having sufficient “capability” and a “system” to properly implement the specific modification.

(ii)     The vehicle modified by the alteration of the software pertaining to the application must conform to the safety standards.

 

Specifically, (i) requires the applicant to have the operational management capability necessary to ensure appropriate software updates and cyber security (“Capability Requirements”)[6] and also to have the organizational structure and processes necessary to properly implement the repair of any defects caused by software updates (“System Requirements”).[7] Also, the above (ii) requires that the software-updated vehicles comply with the safety standards conformity requirements (“SSCR”).[8] Further, MLIT may apply conditions and deadlines when granting an approval.[9]

 

Q7         What are the Capability Requirements? How will they be assessed?

A7         (1) Capability Requirements

The applicant must prepare a management system that complies with the technical standards of the Operation Management System for the Modification of Program (“SUMS Technical Standards”) and the technical standards for the Operation Management System for Cyber Security (“CSMS Technical Standards”) to establish an operation management system to ensure the appropriate management and reliability of modifications to the software and cyber security (Article 1, para.1 and Attachments 1 and 2 of the Notification which sets forth the details of the technical standards related to the approval for specific modification of vehicles (“Notification”)). However, the applicant who intends to engage in the activities stipulated in A5(ii) above does not need to satisfy the CSMS Technical Standards.

 

The content of these SUM Technical Standards, CSMS Technical Standards, and the preliminary certification system for Capability Requirements were taken from the respective UN Regulation adopted by WP29 on June 24 of this year.[10] Similar to the safety standards, these standards were introduced with the intention to harmonize with international standards.[11]

 

(2) Assessment

The applicant for the approval of a specific modification needs to be certified by MLIT in advance to satisfy their Capability Requirements.[12] MLIT grants certification of compliance to the standards to applicants who are deemed to satisfy their Capability Requirements, and such certificate is valid for three years.[13] When applying for an approval for a specific modification, the applicant needs to submit a copy of such certificate that is valid at that time to MLIT.[14]

 

MLIT has entrusted the role of assessing the certification of the Capability Requirements to the National Agency for Automobile and Land Transport Technology (“NALTEC”).[15] NALTEC determines whether the applicant’s operational management system complies with the SUM Technical Standards and CSMS Technical Standards based on the materials submitted by the applicant.[16] Assessment is conducted not only through the materials, but also by on-site inspections, and the period for the assessment is generally completed within eight weeks after the commencement of the review.[17]

 

Note that the Capability Requirements will not currently be assessed for vehicles that are not equipped with ADD.[18] Also, the CSMS Technical Standards will be partially exempt for vehicles equipped with ADD which are manufactured or type approved by 30 June, 2022.[19]

 

Q8         What are the System Requirements? How will they be examined?

A8         (1) System Requirements

The System Requirements are different from the Capability Requirements under which a company’s general organizational structure and processes are subject to review. Instead, the System Requirements of the applicant’s organizational structure and processes are reviewed for each individual software alteration and vehicle modification. Specifically, it is necessary to develop an organizational structure and processes in which the applicant oversees the management and improvement of the design and production of the software for vehicle modification, management and alteration of the vehicle software, cyber security of the vehicle that is modified by such alteration of the software (only for Direct Modifications), and process of rectifying any defects that occurred in the vehicle related to the modification in connection with the specific modification.[20]

 

(2) Examination

When applying for an approval, the applicant must attach to the application form a document certifying that the above structure and processes which satisfies the System Requirements are in place, including providing a quality assurance system chart.[21] Unlike the Capability Requirements and SSCR, MLIT will conduct the examination of the System Requirements.

 

Q9         What are the SSCR? How will they be examined?

A9         (1) Safety Standard Conformity Requirements

The SSCR are the requirements for vehicles to be modified upon each software alteration. Specifically, the structure, device and function of the part of the vehicle modified by the alteration of the software pertaining to the application must comply with the safety standards for each item of Article 40 of the Act and each of the devices listed in each item of Article 41, para.1 of the Act.[22]

 

For example, in the case of a vehicle equipped with an ADD of which software installed is to be updated to have the function of keeping the vehicle in a highway lane where the maximum speed during operation of the ADD is 60km/h or less, it is necessary to comply with Appendix 122 “Technical Standards for Automobiles Equipped with Low-Speed ADD on Expressways”.[23] Further, if such alteration modifies, among others, the function of the approved vehicle type and the applicant applies for an approval of the specific modification for each vehicle type (see A3), the applicant is also required to submit a document which certifies that it has received approval of the modified vehicle type.

 

(2) Examination

When applying for an approval, the applicant must submit a document certifying that the part of the vehicle that has been modified by the applied alteration of the software complies with the safety standards.[24] NALTEC will determine the conformity to the safety standards based on the materials submitted by the applicant and the vehicles presented. Generally, the period for examination is completed within six weeks after the commencement of the review.[25]

 

Q10       Who should apply for an approval for a specific modification?

A10       The party who intends to make the specific modification (see A5) (i.e., the party who alters the vehicle software directly by telecommunication), or the party who provides the software to a third party to make such alteration, will be the applicant for the approval for a specific modification. If there are multiple parties involved with the software update, there may be issues as to who should be the applicant as illustrated below.

 

(i) Various activities could be considered a specific modification, such as (a) where a vehicle manufacturer makes an alteration using software provided by an external vendor (such as a software vendor or a component manufacturer which component includes software) (“Vendor”), or (b) where a vehicle manufacturer provides software to an MRO service provider and such MRO service provider makes an alteration in accordance with the manufacturer’s instructions.  For these activities, either the vehicle manufacturer, the Vendor or the MRO service provider could be considered as a party who made a specific modification and could be an applicant for approval.

 

However, as the applicant will modify the software in cooperation with contracted suppliers, service providers and/or suborganizations of the applicant, MLIT will be satisfied if the applicant takes its own responsibility to alter the software by fulfilling the above licensing requirements and also securing the compliance of the obligations of all the relevant parties to be involved with the alteration. Therefore, for example, it would not be necessary for Vendors or MRO service providers to obtain a further approval for software alterations if the vehicle manufacturers could obtain approvals by establishing their internal or external system organizations including entering into any required agreements  with such Vendors or MRO service providers.

 

Whether the vehicle manufacturer who makes the MRO service provider alter the software will apply for a Direct Modification or an Indirect Modification may differ depending on the relationship between them, the responsibilities of each other, etc., but generally, the vehicle manufacturer would be considered applying for a Direct Modification as there would be less reason for not applying under the CSMS Technical Standards (see A7(1)).

 

(ii) Similar issues arise when an importer alters software provided by a foreign vehicle manufacturer. Similar to (i) above, the foreign manufacturer may become the applicant, but it may be difficult for it to communicate in a timely and proper manner with MLIT and/or NALTEC.[26] Also, as the applicant must comply with certain obligations after obtaining an approval (see A12), there is an issue with enforceability of such regulations to foreign manufacturers. Therefore, in fact, it would often be the case where the importer, not the foreign manufacturer, would be required to become the applicant. Note that to obtain the approval, the importer will be obliged to record and retain certain information of the software at its own facilities.[27] This means that, the importer will need to take the necessary measures to manage the information that it previously did not record and retain on its own (see A13(i)).

 

(iii) In addition, for Vendors who are applying for an approval, if they alter the software directly and not through the manufacturers or importers, they are required to submit a document certifying that consent has been obtained from the manufacturer or the importer and a document describing the details of such consent (including the scope of the vehicles to be modified by the alteration of the software and the implementation conditions of the specific modification pertaining to the application) together with the documents to be submitted for examination of the System Requirements (see A8(2)). The amendment to the Act also allows Vendors to apply for type designation (Article 2 of Vehicle Type Designation Rules) in order for them to apply for an approval for each vehicle type after obtaining the modified type approval.

 

Q11       Is it required to obtain an approval for specific modifications for alterations to software that have been handled through the recall process?

A11       Recall is conducted under Article 63-3 of the Act that requires notice to MLIT in advance to take the necessary improvement measures if the structure, device, or function of a vehicle under an approved type is or may be in compliance with safety standards, and whether the cause of such non-compliance is in the design or production process. Under this recall process, measures should be taken to reinstate the vehicle to the specifications of the designated type. If the scope of the planned software alterations remains within such scope, it would be sufficient to conduct such alteration under the recall process, and it would not be necessary to obtain a separate approval for the specific modification. On the other hand, when a software alteration is made during the recall process in a way that changes the specification of the vehicle for its designated type, an application for an approval for the specific modification may be required together with the prior notification for recall to MLIT.

 

Q12       What are the obligations to be imposed on the applicant?

A12       The applicant of the specific modification must be obliged to maintain compliance with standards related to the Capability Requirements and System Requirements and must comply with, among others, the following requirements:[28]

(i)           Notify MLIT of any change in the items described in the application form and its attachments for approval.

(ii)          Record the prescribed information concerning the applied alteration, such as the implementation status of the alteration of the software and retain said information at the facility of the applicant.

(iii)         Take measures to ensure the cyber security of vehicles subject to the alteration of the software pertaining to the approval including monitoring, detecting and responding to cyber security threats and vulnerabilities (applicable only to the Direct Modification).

(iv)         Providing the vehicle users with information on the purpose, contents, time required for the alteration and how to use the new function for the alteration of the software pertaining to the approval.

 

In addition, MLIT may collect reports or conduct on-site inspections of the applicant when MLIT finds it necessary in order to ensure the appropriate implementation of the specified modification by the applicant, and may issue an order to suspend the specified modification or revoke the approval when the applicant is found to have violated the above obligations.[29]

 

By imposing these obligations on applicants even after they are approved, it is aimed to ensure appropriate software updates and cyber security throughout the vehicle’s lifetime.

 

Currently, an applicant for a specified modification of a vehicle that does not equip the ADD will not be liable for the obligations described in (ii) to (iv) above.[30]

 

Q13       What is the applicant’s liability for any damages caused by updating the vehicle’s software?

A13       The amended Act does not provide for liability for any damages incurred by users or third parties arising from the implementation of a specific modification. Therefore, the liability of the applicant is determined in accordance with existing laws such as criminal law and civil law (including the Product Liability Law, etc.). However, this amendment may affect the applicant’s liability as follows:

(i) As noted above (see A12(ii)), the applicant will be obliged to record and maintain at its own facility certain information about the software to be altered. Also, the applicant must provide the process where the applicant is able to make such information available to MLIT and NALTEC.[31] For this reason, it will be required to provide certain information concerning the software for an audit by the authorities such as MLIT and such information can become the basis for criminal or administrative liability. Also, in some cases, it will be used as evidence by another party to a lawsuit to claim for product liability based on defects in the design of the software.

(ii) In addition, as described above (see A12(iv)), applicant is obligated to provide users with information about software alterations. If such obligation is not performed correctly, product liability, in addition to criminal or administrative liability, based on defects in the instructions and warnings of the software could also be claimed.

 

Q14       When is the effective date of the amended Act?

A14       The amended Act will be implemented from November 23, 2020. However, prior acceptance of applications for an approval began on August 23 of the same year.

 

 

Concluding remarks

This amendment attempts to resolve a practical issue for the handling of vehicle software updates after a vehicle is purchased by a customer by introducing a prior approval requirement for each update which in harmony with global discussions regarding this issue. Companies which are involved with such software updates need to have an accurate understanding of the framework of this regulation, consider the division of roles with other companies if working together for such update, and prepare the internal and external organizational structure and processes necessary for obtaining an approval. Since the amended Act has not yet been implemented, there are many uncertainties in the handling of relevant practical issues. Also, it is anticipated that the Notification will be updated from time to time based on global discussions. Therefore, it is necessary to continue to closely monitor the situation of both the legal framework and regulatory practices going forward.

 

 

(Published October 27, 2020)

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Sonderhoff & Einsell Law and Patent Office routinely provides legal advice related to AI, automated driving, IoT, CASE and MaaS, including advice on automobile-related regulations such as the Road Transportation Vehicle Act, contract drafting and amendment, negotiations, litigation and arbitration, employee training, and response to authorities.

 

The information provided in this document is only general information and does not provide specific professional advice. The views expressed in this newsletter are a personal one of the author and do not constitute a legal opinion of the firm.  For inquiries, please contact Kengo Sakai, the author of this newsletter at: 

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Sonderhoff & Einsell Law Patent Office

100-0005 1-6-2 Marunouchi, Chiyoda-ku, Tokyo

Shin-Marunouchi Center Building 18th Floor

Telephone +81-3-5220-6500

Fax +81-3-5220-6556

http://se1910.com/

 

 

[1] As defined by the SAE International’s J3016 (September 2016) and its Japanese reference translation, JASO TP 18004 (February 2018).

[2] Statement of Mr. Okuda as a governmental expert in No. 9 of the Committee on Land, Infrastructure, Transport and Tourism (8 May, 2019) in No. 118 of the House of Representatives of the Government, “The details of modifications by alteration of software are different depending on the purpose of the modifications, and, in principle, it is necessary to confirm the appropriateness for each software. However, in the case of implementing multiple specific modifications under the same organizational structure and processes, it is not necessarily required to confirm the applicant’s organizational structure and processes individually for each software modification. Therefore, while we will strive to reduce the burden on the applicant by simplifying a portion of the related approvals, we would like to make every effort to maintain the  organizational structure and processes of the individual who makes specific modifications to the automobile by conducting an appropriate post-audit of the individual who received the approval.

[3]  Article 3, para. 1 of the Ministerial Ordinance.

[4] It is defined as follows: “A device which consists of a sensor to detect the conditions and surroundings at the time of operation of the vehicle and a computer and software which processes information transmitted from the sensor that is necessary to automatically operate a car based upon such software, has a function to substitute all of the abilities related to cognition, prediction, determination and operation of the person who operates the vehicle when it is used under the conditions determined by MLIT, and which is equipped with a device that records information necessary to confirm the operational state of the function” (Article 41, paragraph 2 of the Act)

[5] Article 99-3, para.1, items of the Act.

[6] Article 4, para. 1 of the Ministerial Ordinance.

[7] Article 4, para. 2 of the Ministerial Ordinance.

[8] Article 4, para.3 of the Ministerial Ordinance.

[9] Article 99-3, para. 2 of the Act.

[10] UN Regulation on SUMS Technical Standards:

https://undocs.org/ECE/TRANS/WP.29/2020/80

UN Regulation on CSMS Technical Standards:

http://www.unece.org/fileadmin/DAM/trans/doc/2020/wp29grva/ECE-TRANS-WP29-2020-079-Revised.pdf

[11] For SUMS technical standard, Section 7.1 of the relevant Regulation is directly translated, and for CSMS technical standard, Section 7.2 of the relevant Regulation and Table are directly translated, with a few adjustments to localize in Japan. For the prior certification system for capability requirement, Section 6 of the respective Regulation is introduced as Article 2 of the Ministerial Ordinance.

[12] Article 2, para.1 and 6 of the Ministerial Ordinance.

[13] Article 2, para. 5 of the Ministerial Ordinance.

[14] Article 3, para.3, of the Ministerial Ordinance.

[15] Article 99-3, para.8 of the Act.

[16] Article 2, para.3 of the Ministerial Ordinance.

[17] Administrative Rules for Examination Rules 2-5.

[18] Article 5 of the Notification, para.2 of the supplementary provisions of the Ministerial Ordinance.

[19] Article 2 of the supplementary provisions of Notification.

[20] Article 4, para.2 of the Ministerial Ordinance.

[21] Article 3, para.3, item 2 of the Ministerial Ordinance.

[22] Article 4, para.3 of the Ministerial Ordinance.

[23]  Article 48 of the safety standards, Article 72-2, No.14 of the Notification for Details of Safety Standards for Road Vehicles, etc.

[24] Ministerial Ordinance, Article 3, para.3, item 4.

[25] Administrative Rules for Examination 2-4.

[26] For example, the foreign vehicle manufacturer would be required to be capable of proper communications with MLIT and NALTEC under 3.1.1 and 3.1.12 of the SUMS technical standards. Also, it would need to be capable of responsive and proper communications with MLIT regarding remedying any defects that occurred in the automobile which must be managed by the applicant under the System Requirements.

[27]  Article 5, item 2 of the Ministerial Ordinance, Article 2 of the Notification, and A12.

[28]  Article 99-3, para.4 of the Act; para.5 of the Act, Article 5 of the Ministerial Ordinance.

[29]  Article 100, para.1, item 17, para.2, and Article 101 of the Act; Article 99-3, para 7 of the Act.

[30] Ministerial Ordinance, Article 5, para.2 of the supplementary provisions.

[31] SUMS Technical Standards 3.1.12.

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Publication of Amended Pharmaceuticals and Medical Devices Act – Draft Guidelines Regarding Legal Compliance by MAH and Manufactures

Newsletter (October 2020) │  Legal

Ⅰ. Introduction

On December 4, 2019, the “Act on Securing the Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices (the “Act”)” was amended (“Amended Act”) to introduce restrictions on a company’s legal compliance system relating to pharmaceutical affairs (the “Pharmaceutical Compliance System”) conducted by the license holders (“License Holders”) who market, manufacture or sell pharmaceuticals, medical devices, regenerative medicine products, quasi-pharmaceutical products and cosmetics (collectively, the  “Healthcare Products”).[1]  On August 11, 2020, draft guidelines (“Draft Guidelines”) to the Amended Act were published and focused on restrictions regarding the legal compliance by marketing approval holders and licensed manufacturers of the Healthcare Products (collectively, the “MAH/Manufacturers”).  The Draft Guidelines were open for a public comment period which ended on September 9, 2020.[2]

 

The Draft Guidelines do not cover the restrictions on the Pharmaceutical Compliance System for all of the License Holders.  Specifically, the Draft Guidelines cover the restrictions only for the MAH/Manufacturers and do not cover the restrictions for: (i) pharmacies; (ii) store retailers, non-store retailers, and wholesale sellers of the Healthcare Products; (iii) blood drawing business operators; and (iv) sellers, lease operators and repairers of specially-controlled medical devices (although (i) to (iv) are also subject to the Amended Act).

 

Since the Draft Guidelines will be an important road map for the MAH/Manufacturers to establish their Pharmaceutical Compliance System in compliance with the Amended Act, we set out below the key items of the Draft Guidelines in the form of a Q&A.

 

 

Ⅱ. Contents of Draft Guidelines

Q1         When are the Guidelines expected to be formulated?

A1         The Guidelines are currently expected to be formulated in January 2021.[3]  Since the restrictions on the Pharmaceutical Compliance System under the Amended Act will be enforced on August 1, 2021, it is anticipated that the Guidelines will apply at the same time.

 

Q2       Should all MAH/Manufacturers make the same effort to establish the Pharmaceutical Compliance System?

A2         The Draft Guidelines expressly state that the concrete measures to establish the Pharmaceutical Compliance System are expected to be taken depending upon the category and scale of operations of each MAH/Manufacturer.  Therefore, each MAH/Manufacturer should determine their Pharmaceutical Compliance System based on the category and scale of its operations while referring to the Draft Guidelines.

 

Q3       What are the “pharmaceutical affairs-related laws and regulations” that MAH/Manufacturers should comply with? 

A3         The Draft Guidelines provide that the following laws and regulations are considered the “pharmaceutical affairs-related laws and regulations” (“Laws and Regulations”) that the MAH/Manufacturers should comply with:

 

Pharmaceutical Affairs-related Laws and Regulations
  • Pharmaceuticals and Medical Devices Law
  • Narcotics and Psychotropics Control Act
  • Poisonous and Deleterious Substances Control Act
  • Cannabis Control Act
  • Stimulants Control Act
  • Opium Act
  • Act on Securing of Stable Supply of Safe Blood Derivatives
  • Pharmacists Act
  • Act on Control of Household Products Containing Harmful Substances
  • Act on the Regulation of Manufacture and Evaluation of Chemical Substances
  • Act on Special Exceptions of Narcotics and Psychotropics Control Act to Prevent Act to Facilitate Fraudulent Act regarding Restricted Drugs under International Cooperation
  • Pharmaceuticals and Medical Devices Agency Act
  • Act on the Conservation and Sustainable Use of Biological Diversity through Regulations on the Use of Living Modified Organisms
  • Act on Securing of Safety of Regenerative Medicines
  • Clinical Research Act

 

Q4       What kind of penalties will be imposed for the failure of establishing the Pharmaceutical Compliance System?

A4         Although the Amended Act does not provide any penalties against the violation of the provisions regarding the Pharmaceutical Compliance System, the Draft Guidelines provide that “if the measures for establishment of the Pharmaceutical Compliance System are considered to be insufficient, an order for improvement (under Article 72-2-2 of the Amended Act) shall apply”.  If such order applies, the MAH/Manufacturer would need to respond to the Ministry of Health, Labour and Welfare’s (MHLW) regarding compliance with such order, and there would also be a material impact on the MAH/Manufacturer’s reputation as such order is published on MHLW’s website.

 

Q5       What are the system requirements to ensure that the performance of MAH/Manufacturer’s operations complies with the Laws and Regulations

A5         The Draft Guidelines provide the following three items to ensure the compliance with the Act.

(i) Establishment of rules that should be complied with by the officers and employees

The Draft Guidelines provide that MAH/Manufacturer’s internal rules should expressly provide the measures that their officers and employees should comply with and further offered the following examples as measures that should be provided in the internal rules:

Measures that should be provided in the internal rules

Measures that should be provided in the internal rulesItems that should be clarified (Examples)
Measures regarding decision-making to duly perform the operations
  • Person who is authorized to make decisions
  • Scope of the above authority
  •  Judging criteria necessary for the decision-making
  • Internal procedures regarding the decision-making
Measures for each officer and employee to duly perform the operations in accordance with the decision made
  • Person who is authorized to give instructions and orders
  • Scope of the above authority
  • Method of instructions and orders
  • Procedures for operations

 

It is also provided that the MAH/Manufacturers should review their measures from time to time in accordance with the results of their supervision of operations and amendment to the Laws and Regulations.

(ii) Education, Training and Evaluation of Officers and Employees

The Draft Guidelines provide that the MAH/Manufacturers should inform their officers and employees of, and make sure that they comply with, the Laws and Regulations and their internal rules (together, the “Rules”) and confirm the following points:

  • Whether the officers and employees take training that is conducted in a calculated and continuous manner;
  • Whether the officers and employees take training that is conducted as a result of the company’s supervision of their operations or an amendment to the Laws and Regulations;
  • Whether any division or contact point is established where the officers and employees may consult with in relation to the contents or application of the Rules; and
  • Whether the MAH/Manufacturers evaluate their officers and employees on their compliance and understanding of the Rules to ensure that they are motivated to comply with the Rules.

(iii) Preparation, Management and Storage of Operational Records

The Draft Guidelines provide that the MAH/Manufacturers should establish a system where the contents of decision-making and performance of operations by the officers and employees are (a) reported appropriately within the company and (b) timely and accurately recorded so that the appropriateness of such decision-making and performance of operations may be later confirmed.  In particular, the following points should be confirmed:

  • Whether internal rules are provided in relation to document management such as the preparation, management, and storage of operational records;
  • Whether the above internal rules are appropriately implemented; and
  • Whether the appropriate informational security measures are taken such that the system does not allow for after-the-fact alteration of records.

 

Q6       What is required for the system to supervise the operations of MAH/Manufacturer’s officers and employees?

A6         The Draft Guidelines provide that the MAH/Manufacturers should establish and operate a supervising system which enables them to confirm whether the decision-making and operations by the officers and employees are in compliance with the Rules and to take improvement measures where appropriate.  For that purpose, the following points would be important for such system:

  • Whether the internal audit division that is independent from the operations division (a) conducts the internal audit according to the internal audit plan that is made in consideration of the legal compliance risk and (b) reports to the responsible officer;
  • Whether an effective whistle-blowing system is established by clarifying the whistle-blowing procedures and the protection of the whistle-blower;
  • Whether information is collected by statutory auditors sufficiently and the audit’s effectiveness is ensured; and
  • Whether the supervision of operations and addressing of opinions are appropriately conducted by the marketing director (“Marketing Director”), manufacturing controller, and responsible engineer who may most effectively know the issues from the viewpoint of legal compliance regarding the manufacturing control, quality control, and post-marketing safety control (together, the “Marketing Director/Controller”).

 

Q7         What other actions are required to ensure the MAH/Manufacturer’s appropriate operations other than A6?

A7         The Draft Guidelines further require the MAH/Manufacturers to consider the following actions:

  • Appoint a responsible officer (Chief Compliance Officer) who will be in charge of compliance with the Laws and Regulations of the entire operation of MAH/Manufacturers;
  • Deploy a person at the departmental level who will play a central role in ensuring compliance with the Laws and Regulations based on the unique characteristics of each division;
  • If the scale of the MAH/Manufacturers require company-wide efforts for legal compliance, establish a compliance supervision division which would lead the company-wide legal compliance under the supervision of the Chief Compliance Officer; and
  • If an external director is appointed,
    • Encourage the external director to understand the Pharmaceutical Compliance System; and
    • Establish a system where the employees and each division reports to the external director regarding legal compliance issues.

Q8         What is required to clarify the Marketing Director/Controller’s authority?

A8         The Amended Act requires clarification of the Marketing Director/Controller’s authority.  In particular, the Draft Guidelines provide that the MAH should clarify the scope of the following authority of the Marketing Director and share its contents within the company.

  • Authority regarding the instructions and supervision of the operations for: (i) quality; (ii) domestic quality operations; and (iii) safety control and any other person engaged in other manufacturing control, quality control and post-marketing safety control (collectively, the “Manufacturing/Quality/Safety Control”);
  • Authority regarding the decisions and implementation of the: (i) abandonment, collection and suspension of sale of Healthcare Products; (ii) revision of attached documents; (iii) provision of information to medical professionals; (iv) reports to MHLW; and (v) other measures regarding quality control and post-marketing safety control;
  • Authority regarding the management and supervision of manufacturers in order to secure the appropriate and smooth implementation of manufacturing and quality control of the Healthcare Products; and
  • Other authority regarding the Manufacturing/Quality/Safety Control.

Similarly, Manufacturers are required to clarify the scope of authority of the person in charge of manufacturing control or the responsible engineer and to share its contents within the company.

 

Q9         What measures are required in order to comply with the GQP Ministerial Ordinance?

A9         The Amended Act requires that MAH/Manufacturers (i) grant the authority required for the implementation of quality control and post-marketing safety control to, and (ii) supervise the operation of, the Marketing Director/Controller.  The Draft Guidelines further provide as follows:

(i) Grant of Necessary Authority to the Marketing Director/Controller

The GQP ministerial ordinance, GVP ministerial ordinance, QMS ministerial ordinance, GMP ministerial ordinance and GCTP ministerial ordinance (collectively, the “GQP Ministerial Ordinances”) provide the details regarding the operations that the Marketing Director/Controller and other responsible persons should perform.  MAH/Manufacturers need to confirm the following points so that these operations are performed appropriately.

  • Whether the authority that is necessary for the Marketing Director/Controller and other responsible persons to perform the relevant operations is granted and whether the scope of such authority is expressly shared within the company; and
  • Whether consideration has been given as to what kind of authority needs to be granted to each responsible person in order to avoid the situation where the authority granted to the Marketing Director/Controller and other responsible persons is insufficient, and therefore, the Manufacturing/Quality/Safety Control has been compromised and a violation of law or regulation occurs.

(ii) Supervision of Operations by the Marketing Director/Controller

The following actions must be taken by the MAH/Manufacturers so that they can supervise the Marketing Director/Controller’s operations:

  • Confirm whether the Marketing Director/Controller has duly exercised their authority and performed the operations appropriately regarding Manufacturing/Quality/Safety Control; and
  • Take any improvement measures where necessary.

 

Q10       What is required as “other necessary measures for the proper performance of the MAH/Manufacturer’s operations”?

A10       The Amended Act requires a company to take measures necessary for the appropriate performance of the MAH/Manufacturer’s operations.  In addition to the foregoing, the Draft Guidelines provide that it is important to take the following measures:

  1. Measures to avoid the marketing of Healthcare Products inconsistent with their approvals
    • To monitor the discrepancy between the Healthcare Product’s approval and the actual state of manufacturing and other operations in relation to the method of manufacturing and examination of the Healthcare Products and other matters that could affect the quality of the Healthcare Products;
    • In the case of any discrepancies, to adjust the manufacturing and operations in line with the Healthcare Product’s approval; and
    • To take the necessary measures, including obtaining any necessary approvals of the Healthcare Products.
  2. Measures to duly report any side effects
    • To collect, consider, and report safety control information in accordance with the GVP Ministerial Ordinance by:
      • Ensuring sufficient personnel,
      • Arranging for the appropriate system,
      • Supervising operations, and
      • Implementing other necessary measures.
  1. Measures to duly provide information regarding the Healthcare Products
    • Supervision of operations to ensure that accurate information regarding the Healthcare Products is provided based on scientific and objective grounds and that no advertisement violates the advertisement restrictions under the Act; and
    • Other measures.

 

Q11       Please explain the responsible officer’s responsibility.

A11       Under the Amended Act, the “officer who is responsible for the operations regarding pharmaceutical affairs” is regarded as the responsible officer under the Act.  The responsible officer is obliged to act proactively to ensure that MAH/Manufacturers comply with the Laws and Regulations, which includes the establishment and operation of the Pharmaceutical Compliance System.  If an MAH/Manufacturer violates the Laws or Regulations due to a failure by the responsible officer, such responsible officer will be responsible for such violation.

 

Q12       Please explain who would be considered a “responsible officer”.

A12       In the Draft Guidelines, a responsible officer is provided as below.  An executive officer would not be considered a responsible officer under the Act.

 

Category of CompanyResponsible Officer
Joint Stock Company (except for the company with nomination committee, etc.)
  • Director representing the company; and
  • Director in charge of operations on the Laws and Regulations[4]
Joint Stock Company (company with nomination committee, etc.)
  • Representative Executive Officer; and
  • Executive Officer in charge of operations on the Laws and Regulations
Membership Company
  • Member representing the company; and
  • Member in charge of operations on the Laws and Regulations
Other CorporationsPerson similar to the foregoing

*

 

Q13       Please explain the appointment of the Marketing Director/Controller.

A13       The Amended Act provides that the Marketing Director/Controller must have the capability and experience that are necessary to comply with the Laws and Regulations.

The Guidelines provide that the Marketing Director/Controller should be appointed in consideration of the following matters:

  • Upon appointment, the following steps should be implemented: (a) consider what kind of authority should be given to the Marketing Director/Controller based on the matters that the Marketing Director/Controller should comply with and the matters that should be conducted by the Marketing Director/Controller under the Act and GQP Ministerial Ordinance; (b) clarify the scope of such authority; and (c) make an objective judgement as to whether a candidate has (i) knowledge, (ii) experience, (iii) comprehension ability and (iv) judgment ability to perform the operations regarding such authority;
  • Whether a candidate has the leadership to give effective instructions to and supervise the responsible person and person in charge of the relevant division in close coordination with each division regarding Manufacturing/Quality/Safety Control; and
  • Whether a candidate’s position within the company enables him/her to state his/her opinion without hesitation to the responsible officer.

 

Q14       Please explain the Marketing Director/Controller’s obligations to express their opinion.

A14       The Amended Act provides that if it is necessary for the Marketing Director/Controller to fairly and duly conduct Manufacturing/Quality/Safety Control, they are obliged to express their opinions in writing to the MAH/Manufacturers.  In response to this, the Draft Guidelines require the Marketing Director/Controller to perform the following actions:

  • To make endeavors to determine the legal compliance issues proactively and positively;
  • To try to have close coordination with the related divisions and the responsible person and person in charge at such division so that the legal compliance issues may be determined on a broad basis in relation to Manufacturing/Quality/Safety Control;
  • Expressly indicate their opinion to MAH/Manufacturers; and
  • Express opinions in writing so that the fact that the opinion was expressed may be recorded.

For your information, the report on urgent matters may primarily be made orally and not in writing.

 

Q15       Please explain an MAH/Manufacturer’s obligation to respect the opinions of the Marketing Director/Controller and to take measures accordingly.

A15       The Amended Act provides that MAH/Manufacturers must respect the opinions of the Marketing Director/Controller and consider whether it is necessary to take any measures for legal compliance, and if necessary, take the relevant measures.  Also, MAH/Manufacturers must retain records of the contents of the measures taken and store such records.  If the opinion was addressed by the Marketing Director/Controller, but no measures were taken, the MAH/Manufacturers must retain the records of the fact that no measures were taken, the reasons why no measures were taken, and store such records.

 

In response to such provision, the Draft Guidelines provide that it is necessary for MAH/Manufacturers to expressly establish the following system/methods:

  • A system which respects the opinions of the Marketing Director/Controller and allows the responsible officers and committee to receive such opinions and consider whether it is necessary to take any measures based on such opinions;
  • Express indication of the responsible officers that take relevant measures;
  • Methods of expressing the opinions by the Marketing Director/Controller; and
  • System in which the necessary measures are taken by MAH/Manufacturers.

 

Ⅲ. Conclusion

The Draft Guidelines are an important road map for the Pharmaceutical Compliance System that is required by the Amended Act, therefore, it would be useful to closely examine the Draft Guidelines and begin determining if there are any deficiencies in your company’s own Pharmaceutical Compliance System.  Many companies would need to implement or consider actions in order to comply with the Amended Act, which would include changing the organization, establishment of and/or amendment to their internal rules.  As such, in anticipation of the establishment of the Guidelines, it would be important to organize an internal team and provide input to the management.  It would also be necessary to continue to follow and address the issues brought forth in the public comments and responses to such public comments.

(12 August 2020)

******************

Sonderhoff & Einsel Law and Patent Office regularly provide the advice regarding healthcare-related restrictions including the Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices and related legal advice such as dealing with public comments, dealing with compliance, preparation of, negotiations on and amendment to, contracts, training, dealing with authorities and dispute litigation.

 

The information provided herein is provided for general purposes and is not designed to provide concrete, professional advice.  For detailed advice, please contact Ms. Ayuko Nemoto), our responsible partner, who will deal with the case individually.

 

Sonderhoff & Einsel Law and Patent Office

Shin Marunouchi Center Bldg. 18th Floor

1-6-2 Marunouchi, Chiyoda-ku, Tokyo 100-0005

Telephone:        +81-3-5220-6500

Facsimile:          +81-3-5220-6556

http://se1910.com/

[1] For the outline of the Amended Act, please refer to our newsletter entitled “Draft Amendment to Pharmaceuticals and Medical Devices Law 2019 and Its Influence to Companies” (https://se1910.com/ja/newsletters-ja/newsletter-november-2019-law-practice-2/)

[2] https://search.e-gov.go.jp/servlet/Public?CLASSNAME=PCMMSTDETAIL&id=495200176&Mode=0

[3] https://search.e-gov.go.jp/servlet/PcmFileDownload?seqNo=0000205324

[4] The operations on the Laws and Regulations in the table above means the: (i) operations regarding matters that are subject to restriction under the Act such as applications for approval, marketing, Manufacturing/Quality/Safety Control, and advertisement of Healthcare Products; and (ii) operations regarding matters that are subject to restriction under other Laws and Regulations.  It must also include the operations regarding the compliance with the Laws and Regulations.  Operations also includes the operations on advertisements and compliance with the Laws and Regulations other than the Act.  In addition, an officer of an MAH/Manufacturer who is not in charge of the operations on the Laws and Regulations would not be considered a responsible officer under the Act.

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Important Notice: Easing of Restrictions on Re-Entry to Japan for Foreign Nationals Due to COVID-19/Coronavirus

Newsletter (August 2020) │LAW Practice

“Important Notice: Easing of Restrictions on Re-Entry to Japan for Foreign Nationals Due to COVID-19/Coronavirus”

 

In order to prevent the spread of COVID-19, the Ministry of Justice (“MOJ”) had denied foreigners re-entry to Japan regardless of their residence status. However, on September 1, 2020, the Japanese Government announced that it eased restrictions on re-entry to Japan for foreign nationals with a valid status of residence. All foreign nationals with a status of residence who departed from Japan up until August 31, 2020 with a valid re-entry permit and are in possession of a letter of confirmation issued by the Japanese embassy in the country of stay, or who departed from Japan with a re-entry permit on or after September 1, 2020, and are in possession of a Letter of Confirmation of Submitting Required Documentation or a Receipt for Request of Re-entry into Japan issued by the Japanese embassy or consulate in the country or region of stay. In addition, foreign nationals who wish to re-enter Japan must comply with additional epidemic prevention and control measures, which is to take a PCR test to prove a negative test result and present it to the immigration officer in Japan. The PCR test must be performed within 72 hours before leaving the country or region of stay (for detailed procedures, please see this link).

 

There are also other special exceptional circumstances where foreigners are allowed re-entry such as: when special exceptional circumstances are recognized for individual cases, such as when there are special humanitarian considerations to be made, such as:

 

  1. It was necessary to leave Japan in order to visit a relative living abroad who was in a critical health condition or to attend the funeral of a deceased relative.
  2. It was necessary to leave Japan for medical treatment at a foreign medical institution such as surgery (including re-examination) or childbirth.
  3. It was necessary to leave Japan after receiving a summons from a foreign court to appear as a witness.
  4. It was necessary to leave Japan for a child or student receiving elementary or secondary education in Japan in order to take entrance examinations or carry out other necessary procedures for admission to further education in their home country or another country, and to re-enter Japan in order to continue to receive such education at the same educational institution in Japan towards graduation (this would apply for accompanying parent(s) or guardians).

 

Specific examples of cases where permission for entry or re-entry may be granted due to being special exceptional circumstances cases corresponding to individual situation in relation to the measures for denial of landing relating to prevention of the spread of the novel coronavirus (COVID-19).
http://www.moj.go.jp/content/001327576.pdf

 

Although restrictions on the entry and departure of Japan by foreign residents have been eased, the restrictions remain stricter than for Japanese nationals, as the aforementioned requirements not imposed on Japanese nationals. Company representatives should keep monitoring developments by the Japanese Government to ensure that appropriate action is taken when their foreign employees enter or leave Japan.

Please contact us for an individual assessment.

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Employer’s Duty to Implement Measures to Prevent Workplace Power Harassment

Newsletter (August 2020) │LAW Practice

“Employer’s Duty to Implement Measures to Prevent Workplace Power Harassment”

 

­­­­­­­­ While workstyles have been changing in Japan due to COVID-19, the Labor Policy Comprehensive Promotion Act (Act No.132 of 1966 amended by Act No. 24 of 2019) (the “Act”) became effective on June 1, 2020, and the Act requires companies to implement measures to prevent workplace power harassment.  Although the Act only applies to large companies at this juncture, it will apply to small-to-mid-sized enterprises[1] from April 1, 2022, and therefore, SMEs will also be expected to implement these measures as soon as practically possible.

 

Under the current circumstances affected by COVID-19, many companies have implemented a “remote work” or “work-at-home” system.  While some may think that not working at the office would result in less harassment cases, unfortunately, harassment continues and has just taken a different form.  The term “Remote Harassment” has been increasingly used in the media, and this type of harassment is divided into two types: 1) sexual harassment – where a boss asks his subordinate to show him her room; or 2) power harassment – where a boss conducts excessive micromanagement or requests excessive online meetings.

 

In this newsletter, we would like to focus on the regulations with respect to workplace power harassment.

 

  1. What is “Workplace Power Harassment”?

Article 30-2.1 of the Act requires employers to take necessary measures for employment management, such as the development of systems to respond to a request for consultation from an employee and to deal with such consultation in an appropriate manner to ensure that the working environment of the employee is not harmed.

 

On January 15, 2020, the Ministry of Health, Labour and Welfare published the “Guidelines Concerning Measures to be Taken by Employers in terms of Employment Management with Regard to Problems Caused by Taking Advantage of Their Superior Position in the Workplace” (“Guidelines”) based on Article 30-2.3 of the Act.

 

According to the Act and Guidelines, workplace power harassment means words or acts which satisfy the following three requirements:

  1. Which are said or done by taking advantage of the superior relationship in the workplace;
  2. Which go beyond the necessary and reasonable scope of work; and
  3. Which harms the working environment of the employee.

 

With regard to the first requirement, in general, workplace power harassment is conducted by a superior against his/her subordinate, but it can be done between colleagues or a subordinate against his/her superior if such colleague or subordinate has the necessary business knowledge or experience and it is practically difficult to work smoothly without his/her cooperation.

 

For the second requirement, as mentioned, workplace power harassment requires words or behavior which must go beyond the necessary and reasonable scope of the work.  Also, business instructions or training in an appropriate manner which is within the scope of necessary and reasonable work would not constitute workplace power harassment.  In determining the reasonableness of the conduct, various factors are comprehensively taken into consideration, including the purpose of the speech or conduct, the circumstances in which the speech or conduct was said or done, including the existence, content and degree of problematic behavior of the employee, frequency and continuity of the speech or conduct, the relationship between the employee and the harasser, and the degree of physical or mental distress suffered by the employee as a result of the speech or conduct.

 

The third requirement of an act which “harms the working environment of the employee” requires that the employee’s working environment becomes so unpleasant that the harassing speech or conduct causes the employee physical or mental distress that has a serious and adverse effect on his/her work performance.  This requirement will be determined based on a reasonable employee’s perception of an act of harassment.

 

  1. Types of Workplace Power Harassment

The Guidelines states the following six (6) types of speech or conduct as a typical act of workplace power harassment.

a. Physical assault,

b. Mental assault,

c. Isolation,

d. Excessive demands – i.e., to order unnecessary or impossible work,

e. Requesting menial tasks – i.e., ordering an employee to perform menial tasks which are far below the employee’s ability or experience, and

f. Breach of privacy – i.e., excessively inquiring into the private affairs of the employee.

 

The Guidelines also specifically identified that disclosing an employee’s sexual orientation or gender identity without his/her consent) is an example of a breach of privacy which would constitute workplace power harassment.  In order to protect employee’s personal information, an employer must take measures to notify their employees that they should not reveal their colleagues’ sensitive personal information.

 

  1. Employer’s Measures to Prevent Workplace Power Harassment

The Act requires large company employers to implement the following measures.  As mentioned above, from April 1, 2022, SMEs will also be required to implement these measures.

 

(a) Establish a corporate policy to prevent workplace power harassment and to internally announce such policy and train employees on power harassment prevention.

 

An employer is required to establish a corporate policy regarding the types of speech and behavior that would constitute workplace power harassment and announce such policy to their employees.  An employer must also state the contents of the power harassment in its company work rules or other internal rules and have their employees understand the background and cause of workplace power harassment.  An employer is also expected to conduct training or seminars for its employees to prevent power harassment.

 

Further, an employer needs to establish a policy on the disciplinary actions against an employee who has conducted power harassment and make it available to employees.

 

There are also whistleblowing type regulations which prohibit an employer from dealing with an employee who requested a consultation for potential power harassment in a disadvantageous manner (e.g., dismissal), and is required to provide such regulations in work rules or other internal rules and make it available to employees.

 

(b) Establish a governance system to handle power harassment cases.

 

An employer is required to establish a consultation hotline or point of contact and announce it to employees and respond appropriately and flexibly to any consultations.  In addition, to ensure that the person in charge of the hotline handles consultations from employees in an appropriate manner, the employer needs to establish a system that can allow the person in charge to smoothly cooperate with the HR department, create a manual for consultation, or to provide the person in charge with training.

 

(c) Deal with consultation in an immediate and appropriate manner, and to implement reoccurrence prevention measures.

 

If an employee seeks a consultation regarding power harassment, it is necessary for the employer to investigate the facts in an immediate and appropriate manner.  In doing so, it is necessary to conduct an interview with the alleged harasser as well as the employee who asked for consultation.  The employer should be aware of the fact that the employee’s consultation with the company could lead to further power harassment against such employee, and therefore, the employer is required to respond flexibly, such as interviewing the alleged harasser after interviewing witnesses.

 

A key condition to conducting a fair fact-finding investigation is that the employer must not conduct a biased interview.  For example, if an employee who has work performance issues seeks a consultation regarding harassment, if the employer gives such employee a business instruction which goes beyond the necessary and reasonable scope of work, such act would constitute workplace power harassment.

 

Further, an employer should be aware that power harassment is often conducted in a closed room, and as a result, an employee who seeks consultation often has no objective evidence, such as audio data.  Also, the employee who has been harassed is often compliant with the harasser, and thus, although email communications may indicate a friendly relationship between the harasser and the employee, the employer should be careful in determining whether there was a workplace power harassment by collecting other non-biased information and conducting interviews with colleagues.

 

If an employer finds workplace power harassment, it is required to take measures for the employee who has been harassed – for example, job rotation of either the employee or harasser, apology by the harasser, or consultation for mental and emotional distress.  Further, the employer should take disciplinary action against the harasser, or have the actor apologize to the harassed employee in accordance with the company’s internal rules.

 

Also, to prevent a reoccurrence of power harassment, an employer is required to internally announce the company’s policy to prevent power harassment and educate employees to make them more deeply understand the various types of power harassment and the measures the company has in place to resolve and prevent any power harassment issues.

 

  1. Guidelines – Preferable Measures

The Guidelines provide that companies are highly expected to take the following measures:

 

a. Establish a governance system that is able to provide consultation for power harassment as well as other types of harassment such as sexual harassment or maternity harassment,

b. Implement measures to eliminate the causes and environment which would cause power harassment in the workplace, and

c. Put forth efforts to monitor the preventive measures for power harassment and to consider necessary update through conducting questionnaires or discussions with employees.

 

In addition, an employer is expected to provide an internal policy for their employees to not  conduct any harassment acts against other third parties, such as their suppliers’ employees, job seekers, freelancers, and internship students.  An employer should also endeavor to encourage self-awareness of their employees to not conduct harassment.  Further, an employer is also expected to establish a system to properly deal with harassment acts by their customers.

 

  1. Going Forward

The term “harassment” has continued to become a household word in the media, especially with the recent cases of “Remote Harassment”.  With the increased awareness of harassment in the workplace, we believe there will likely be an increased number of employee consultations.  For each employee consultation, the initial response is very important.  Considering that a company could be liable for monetary damages if workplace power harassment is found, it must be careful in its initial determination of whether there was workplace power harassment.  In addition, even if the company does not find any act of power harassment, it often becomes practically difficult for the employee to continue employment with the company and appropriate measures must be implemented to ensure that such employee is not put in a disadvantageous position as a result of his/her consultation.  We believe it is critical to involve an attorney in the early stages before a harassment situation can become unmanageable.  Our firm can not only advise you on an initial employee consultation, but also draft internal policies and function as an outside point of contact to employees to help prevent and resolve any acts of harassment in the workplace.

 

[1] SMEs mean business operators other than the national government, local governments, and administrative agencies with capital or contributions of not more than JPY 300 million (JPY 50 million for business operators whose main business is retailing or service, and JPY 100 million for business operators whose main business is wholesale), and employing not more than 300 employees on a full-time basis (50 for employers whose principal business is retail or service, and 100 for employers whose principal business is wholesale) (see Article 4 of the supplementary provision of the Act).

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An Introduction to the Annual Report from the Intellectual Property Court of the Supreme People’s Court (2019)

Newsletter (May 2020) │IP Practice

On April 16, 2020, the Supreme People’s Court of China promulgated the “China Intellectual Property Rights Court Annual Report (2019)” (hereinafter referred to as “report”). The Intellectual Property Court of the Supreme People’s Court of China, which was officially launched on January 1, 2019, examined cases of intellectual property rights such as appeals of patents and other technologies, played a role in further unifying the trial standards and improving the quality of trials. The report is a summary of cases heard by the Intellectual Property Court of the Supreme People’s Court of China in 2019. The report is described in brief below.

  1. Relevant data

In 2019, the IP Court accepted a total of 1,945 technology-related IP cases and concluded 1,433 cases, with a closing rate of 73.7%. Among the newly accepted cases, 962 were civil substantive cases of second instance, of which 586 were concluded; and 241 were administrative cases of second instance, of which 142 were concluded. The closing rate of administrative cases of second instance is far lower than that of civil substantive cases of second instance.

a. Statistical analysis of the source of cases

In 2019, the IP Court accepted a total of 1,684 various types of cases of second instance. Among them, 1,678 were appeals against judgments made by Intermediate People’s Courts in the first instance and 6 were appeals against judgments made by High People’s Courts in the first instance.

The ranking of the source regions of the cases is shown in the figure below. The data roughly reflect the distribution of technology-related IP disputes across the country. It is clear from the above data that economically developed regions tend to have more economic activities involving technology-related intellectual property and, accordingly, there are more related disputes.

b. Statistical analysis of the types of cases accepted

The type of 241 administrative cases of second instances were as shown in the figure below. The majority of the cases are administrative disputes over invalidation of invention patent rights (33.2%), administrative disputes over reexamination of invention patent applications (29.5%), and administrative disputes over invalidation of utility model patent rights (23.7%).

c. Statistical analysis of judgment results

In 2019, the IP Court concluded a total of 1,174 cases of second instance. Among them, 731 cases were concluded with the decisions of the first instance being affirmed; 280 cases were concluded with the appeals being withdrawn, 71 cases were concluded through mediation, with a mediation and withdrawal rate of 29.9%; and 92 cases were concluded by either being sent back for retrial or through reversal of decisions on appeal, with a send back and reversal rate of 7.8%. Of the 92 sent back for retrial or reversal cases concluded by the IP Court, there were 66 civil substantive cases of second instance, 21 cases of second instance on challenge to jurisdiction, and 5 administrative cases of second instance.

Of the 586 civil substantive cases of second instance concluded by the IP Court, 236 were concluded with the decision of the first instance being affirmed; 213 cases were concluded with the appeals being withdrawn, 71 cases were concluded through mediation, with a mediation and withdrawal rate of 48.5%; and 66 cases were concluded by either being sent back for retrial or reversal of decisions on appeal, with a send back and reversal rate of 11.3%.

Of the 142 administrative cases of second instance concluded by the IP Court, 126 cases were concluded with the decision of the first instance being upheld; 11 cases were concluded with the appeals being withdrawn; and 5 cases were concluded by reversal of decisions on appeal, with a reversal rate of 3.5%.

Of the 446 cases of second instance on challenge to jurisdiction concluded by the IP Court, 369 cases were concluded with the decisions of the first instance being affirmed; 56 cases were concluded with the appeals being withdrawn; and 21 cases were concluded by reversal of decisions on appeal, with a reversal rate of 4.7%

d. Statistical analysis of trial period

In 2019, the average trial period for substantive cases of second instance tried by the IP Court was 73 days, and 29.4 days for cases of second instance on challenge to jurisdiction. The closing rate was 39.2 cases per judge.

e. Statistical analysis of cases involving a party from foreign countries, Hong Kong, Macau, and Taiwan

In 2019, the IP Court accepted 174 cases involving a party from foreign countries, Hong Kong, Macau, and Taiwan. Among them, there were 50 civil substantive cases of second instance, 52 administrative cases of second instance, 71 cases of second instance on challenge to jurisdiction, and one other case.

The IP Court concluded 98 cases involving a party from a foreign country, Hong Kong, Macau, and Taiwan. Among them, 35 substantive cases were concluded, of which 21 were won by foreign parties (including partially won), three were won by Hong Kong, Macao and Taiwan parties, and 11 were won by parties from the Chinese mainland.

2.Case characteristics analysis

a. Overall characteristics of cases

In 2019, technology-related IP cases tried by the IP Court shared the following characteristics:

(i) The cases involved a wide range of technologies.

(ii) The cases have had a large social impact. One is the high market value of the intellectual property involved in the cases. Two is the high degree of attention from society when the cases involve cutting-edge technologies or have an impact on the national economy or people’s livelihood, such as standard essential patents (SEPs), pharmaceutical patents, etc.

(iii) The cases involve interconnected procedures. The IP Court accepted many mutually competitive litigation cases in which the parties filed multiple civil and administrative litigations against each other in different courts.

(iv) The trial period of the cases was short. The average trial period for substantive cases of second instance concluded by the IP Court in 2019 was only 73 days, which indicated that the trial period for cases involving the protection of technology-related intellectual property rights had been considerably shortened.

(v) The legitimate rights and interests of Chinese and foreign parties are equally protected. The IP Court continues to insist on equal treatment and equal protection of the intellectual property rights of both Chinese and foreign market entities of various types, according to law.

(vi) The tendency towards increasing judicial protection is clear. Among the cases concluded, cases supporting the obligee’s claims according to law accounted for 61.2% of the total.

b. Characteristics of civil patent cases

The civil patent cases heard by the IP Court have the following characteristics:

(i) There are many cases in which claim construction and the determination of equivalent infringement are the main disputes.

(ii) Legitimate source defense, prior art defense, and preemption defense are the most common types of defense.

(iii) Related cases with commercial rights protection account for a certain proportion.

c. Characteristics of administrative cases concerning patents

The administrative cases concerning patents heard by the IP Court have the following characteristics:

(i) There are many cases involving invention patents and high-tech fields.

(ii) Judgment of inventiveness is the main dispute in most cases. There were a total of 92 cases involving an inventiveness judgment, accounting for about 70% of patent administrative cases, and among the cases where the judgment of the first instance was reversed, 80% involve examination of inventiveness.

(iii) Among the cases sent back for retrial, many cases have natural persons as the applicants.

 

The Intellectual Property Court of the Supreme People’s Court has handled numerous intellectual property cases, as reported above. The court also released “Summary of the Supreme People’s Court Intellectual Property Court Judgement (2019)”, which features a selection of 36 typical cases from the cases closed in 2019, and details on the refined 40 adjudication rules. It can be said that these cases and adjudication rules are the guidelines and standards used in hearing difficult and complicated IP cases.

 

Source:http://www.court.gov.cn/zixun-xiangqing-225861.html

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Effective Date of the Amended Foreign Exchange Act on Foreign Direct Investment, and Revisions of the Draft Regulations Based on the Results of Public Comments

Newsletter (April 2020) │ Legal Affairs

 NOTE:  This newsletter was prepared based on its Japanese version as of April 30, 2020 to supplement and update the information contained in our separate newsletter.  For a better understanding of the issues, please read together with our newsletter dated March 27, 2020 (click here).

 

Our March 27, 2020 newsletter (click here) [1] explained the details of the draft Cabinet Order, Ministerial Ordinance and Public Notice (collectively or individually, “Draft”).  This newsletter outlines the revision of the Draft based on the results of the public comments carried out until April 12, 2020 (“Public Comments”) and the subsequent developments until April 30, 2020.

 

  1. The Enforcement and Implementation Dates

On April 24, 2020, the Cabinet finalized the Draft which amends the former cabinet order on foreign direct investment.  On the same date, the Ministry of Finance (“MOF”) issued a publication[2] called the “Revisions to the Draft on the Foreign Exchange and Foreign Trade Act” (“Revisions”).  This publication indicates that the Draft will be promulgated on April 30, 2020, and that the Revisions and Draft will come into effect on May 8, 2020 (“Enforcement Date”) and will be implemented on June 7, 2020 (“Implementation Date”).  The Revisions were indeed promulgated on April 30, 2020.

 

As of March, the MOF list of companies was scheduled to be published on the same date as Cabinet’s finalization.   However, the list has not been published at that time, and according to the MOF, it is scheduled to be published on the Enforcement Date.

 

  1. Transitional measures

Although prior filing needs to be made for an acquisition of 1% or more of the listed shares of an entity which is expected to be done on or after the Implementation Date, the MOF indicated that the filing may be made during the period from the Enforcement Date until the Implementation Date.  For example, if a foreign investor (“Foreign Investor”) is plans to acquire shares on or after June 7, it will be able to submit a prior filing in accordance with the amended Foreign Exchange and Foreign Trade Act (“Amended Act”) from May 8, 2020.

 

  1. Revisions in access to confidential information

If a Foreign Investor does not have access to confidential information, such inability to access confidential information can be an exemption of the prior filing requirement.  The “access” was defined more precisely as (a) acquire confidential information (except for when the issuing company provides it to the Foreign Investor) knowing it was confidential, (b) propose to disclose confidential information and knowing it is confidential, and (c) propose changes to the regulations and contracts related to the management of confidential information.

 

With respect to the above, and after reviewing the Public Comments, exceptions have been made for M&A advisory departments of security houses and banks which inevitably access confidential information and would not be eligible for exemption.  The exception is that if certain measures are taken to ensure that (i) confidential information is not provided to the stock trading department; and (ii) any influence over the issuing company through the shares held by the stock trading department is prohibited, the Foreign Investor would not be deemed to have “access” to confidential information.

 

  1. Filing is valid for any acquisitions to be made during six months of the filing

While the Draft previously required prior notification for each acquisition of 1% or more of the listed shares of an entity, it has been amended so that a Foreign Investor will be allowed to acquire shares up to the amount stated in the prior filing on multiple occasions within a six-month period from the date of approval.

 

  1. Elimination of administrative burden for prior filing and post-reporting upon acquisition of shares

(1)         Prior Filing

As mentioned in paragraph 4 above, if the prior filing is approved through the examination, a Foreign Investor can acquire shares up to the stated number of shares for a period of six months from the date of approval.  The Foreign Investor does not need to make a filing on each subsequent acquisition.  In addition, while a post-acquisition report was required to be submitted within 30 days of the closing of the transaction under the current law, the deadline for the reporting has now been extended to 45 days.

 

(2)         Post-acquisition Report

When an exemption is approved, a prior filing for the acquisition is not required, but a post-acquisition report still needs to be made when the acquisition rate reaches the following threshold:

(i)       1% or higher for the first time;

(ii)      3% or higher for the first time;

(iii)     For each acquisition of 10% or more of shares.

 

However, if the threshold (i) and (ii) is reached a second time (e.g., after going below the threshold by a sale of the shares), a post-acquisition report will not be required.

 

In addition, the filing forms of a post-acquisition report in the cases of an exemption and non-Designated Sector have been simplified after consideration of the Public Comments.  Thus, the Revisions intend to reduce some of the administrative work for a Foreign Investor.

 

  1. Other changes and the results of Public Comments

As mentioned above, the period of the Public Comments was set until April 12 for the Draft. Although a considerable number of comments should have had been submitted by industry associations and other organizations, as of now, no comprehensive response to all submitted comments has been published. The revisions from the Draft are limited to those discussed above, and there seems no other indications for further revisions.  [Note:  As of May 1, 2020, the comprehensive comments of the Public Comments were published on the website of MOF.]

 

Incidentally, the public comment period for comments regarding factors for the MOF and examining authorities to consider for prior filings were open from April 4 to May 3, 2020.

 

  1. Going Forward

The Enforcement Date and the Implementation Date have been now fixed, and the schedule for implementation of the Amended Act has been clarified.  As mentioned in our previous newsletter (click here), it will be necessary for investors and companies that may potentially become Foreign Investors to prepare an internal business flow, as well as obtain external legal consultation so that they can prepare for acquiring any shares on or after June 7, respond to the appointment of officers to certain companies, and respond to voting rights promptly in accordance with the Amended Act.   In addition, although the MOF list of listed companies will not be published until May 8, Japanese companies which believe that they will likely to fall under the category of the Designated Sector industries and listed on the MOF list should prepare an internal system so that they can respond timely to inquiries from Foreign Investors regarding the matters to be stated in the filing form immediately after the publication of the MOF list.

 

 

[1] English version was released on May 8, 2020.

[2] https://www.mof.go.jp/english/international_policy/fdi/kanrenshiryou02_20200424.pdf

 

(Released on May 11, 2020 based on the Japanese version released on April 30, 2020)

 

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The Sonderhoff & Einsel routinely provides advice on foreign trade regulations, including the Foreign Exchange Act, and related regulatory issues in M&A, contract drafting and amendment, negotiations, litigation & arbitration, employee training, and responses to authorities.

 

The information provided in this document is only general information and does not provide specific professional advice. The views expressed in this newsletter are a personal one of the author and do not constitute a legal opinion of the firm.  For inquiries, please contact Naoki Watanabe at: .

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Q&A on the Draft Cabinet Order, Ministerial Ordinance and Public Notice of the Amended Foreign Exchange Act Which Restricts Foreign Investment in Japan

Newsletter (March 2020) │  Legal

NOTE:  This newsletter was prepared based on its Japanese version as of March 27, 2020, and the information contained in this newsletter has been updated in our next newsletter (click here).  

 

The amended Foreign Exchange and Foreign Trade Law (Law No. 60 of 2019) (the “Amended Act”) passed the Diet on November 22, 2019, was promulgated on November 29, 2019, and will come in effect by May 29, 2020.  While the Amended Act imposes upon “foreign investors” (to be explained later) prior filing requirements on the acquisition of shares of Japanese enterprises more extensively than before, the details of the prior filing requirements were left to relevant subordinated regulations (i.e., cabinet orders, ministerial ordinances, and public notices), which have not been clarified. This newsletter discusses in the form of Q&A, the draft Cabinet Order, Ministerial Ordinance and Public Notice which were released on March 14, 2020 (“Draft”).[1]

 

Q1:        What is the aim of the Amended Act?

A1:        Recently, the United States, Europe, and other major countries have been strengthening restrictions on foreign investments which are likely to impair national security. As a response to these movements, Japan recognized that it should also take appropriate steps, and passed the Amended Act.  The purpose of the Amended Act is to appropriately monitor the involvement of foreign investors in Japanese companies which are engaged in national security.

 

Q2:        Who is a “Foreign Investor” and what changes will be made to the scope of a “Foreign Investor”?

A2:        A foreign investor is defined as (i) a non-resident individual, (ii) a company or other association established under a foreign law, (iii) a company whose 50% or more voting rights are directly or indirectly held by (i) and/or (ii), or (iv) an entity of which a majority of its directors, executive officers, or other members having power and authority to control the entity are (i).  In the past, Japanese companies (a) whose 50% or more voting rights are directly owned by non-residents or foreign corporations, or (b) whose 50% or more voting rights are owned by Japanese companies falling under (a) were regarded as “Foreign Investors”.

 

However, the Draft now adopts the definition of a “subsidiary” as used in the Company Act, and therefore, a Japanese company can be regarded as a Foreign Investor even if the percentage of voting rights held by a foreign company (or its subsidiaries) does not exceed 50% but such Foreign Investor has certain power and authority to control it.  Therefore, an affiliate that had not previously fallen under the scope of a Foreign Investor may be considered as a Foreign Investor due to this amendment.  See an example chart prepared by the MOF below.[2]

Q3:        What are the major revisions to the Amended Act?    

A3:        The major revisions include (i) expanding the number of industry sectors subject to the prior filing requirement for the acquisition of shares of Japanese companies by Foreign Investors, and (ii) lowering the threshold for the acquisition ratio of listed companies for the filing from ten percent (10%) to one percent (1%).  Furthermore, certain Foreign Investors that are deemed to have low national security concerns will be exempted from the filing requirements.

 

Q4:        What has been clarified by the publication of the Draft?

A4:        The change in the scope of Foreign Investors (See A2); the industry sectors subject to the prior filing (See A6); the activities newly added to the subject of prior filing (See A7); and the outline of the new exemption rules (See A10) have been clarified.

 

Q5:       What changes are made in the acquisition ratio that require prior filing of the acquisition of shares of listed companies by Foreign Investors?

A5:        While previously the threshold of the prior filing requirement was ten percent (10%) or more of the total number of outstanding shares, under the Amended Act, it will be one percent (1%) or more of the total number of outstanding shares.

 

Q6:       What changes are made to the industry sectors subject to prior filing?

A6:        Previously, 155 out of the 1,465 industry sectors classified by the Japanese Standard Industrial Classification were designated as the industry sectors (“Designated Sectors”) that require prior filing.  In this amendment, the Designated Sectors have been divided into “core industries” and “non-core industries.” Core industries include the following 12 industrie

 

Core industries[3]
  • Weapons
  • Aircraft;
  •  Space;
  • Nuclear energy;
  • Generic products usable for military purposes; (Note: there are no limitations or exceptions for the above four items)
  • Cybersecurity: Cybersecurity-related services and services related to the provision of programs specifically designed for critical infrastructure;
  • Electric power: General electric power transmission businesses, general electric power distribution businesses, electric power supply businesses, and electric power generation businesses (limited to those having power plants with a maximum output of 50,000 KW or more);
  • Gas: General and specified gas pipeline operators, gas manufacturers, LPG operators (limited to those with storage facilities or core filling stations);
  • Telecommunications: Telecommunications carriers (limited to those who provide telecommunication services across multiple municipalities);
  • Water supply: Water utility business operators (limited to those with a water supply population of more than 50,000 people), water for water-supply business operators (limited to those with a supply capacity of more than 25,000 cubic meter per day);
  • Railway: Railway business operators (designated public organizations under the Act on Response to Armed Attack); and
  • Petroleum: Petroleum Refining, Petroleum Stockpiling, Crude Oil and Natural Gas Mining.

 

Non-core industries[4]
  •  Industries not listed in the list of core industries but are related to cybersecurity, electric power, gas, telecommunications, water supply, railway, and petroleum
  • Heat supply
  • Broadcasting
  • Passenger transportation
  • Biological preparations
  • Security services
  • Agriculture, forestry and fisheries
  • Leather-related
  • Air transport
  • Maritime transport

 

The distinction between core and non-core industries is significant in terms of whether prior notification will be exempted under the regular exemption (See A10).

 

In addition, the MOF plans to prepare a list of companies indicated as being engaged in a core industry (regardless of being in the above list of core or non-core industries), and will publicize the list by the date of the enforcement of the Amended Act.  A newspaper article reported that 400 to 500 companies out of approximately 3,800 listed companies would likely fall into the core industry category.[5]

 

Q7:       Are there any activities that have newly become subject to the prior filing requirement?

A7:        In addition to the activities that have been already subject to prior filing, the following two have become subject to the prior filing:

 

(i)        Consent to an agenda of a general meeting of shareholders where a Foreign Investor himself/herself (where the Foreign Investor is an individual) or the Foreign Investor’s “Closely-related Person(s)” (where the Foreign Investor is an entity) (See A8) will assume the office of a board member(s); and

(ii)       A proposal and consent by a Foreign Investor to an agenda of a general meeting of shareholders which proposes and consents to a transfer or dissolution of a business that falls into one of the designated core industries.

 

The Draft has provided clarification on the meaning of the underlined language of the Amended Act “to consent to a substantial change in the business purpose of a company, or other item which has a material influence on the management of a company which is to be specified by a cabinet order as having a material influence on the management of a company”.

 

Regarding the proposal for appointment of a board member set forth in (i) above, consent to the agenda is subject to prior filing, even if the agenda is proposed by the company rather than the Foreign Investor himself/herself.   On the other hand, for (ii) above, a proposal made by a Foreign Investor will be subject to prior filing, but a proposal made by the company to dissolve or transfer  the business in a core industry will not trigger a prior filing.

 

Please note that even if a Foreign Investor is exempted from the prior filing requirement on share acquisition (See A10), such exemption will not apply to the above two actions (i) and (ii).

 

In addition, the “acquisition of 1% or more of the voting rights of a listed company, etc.” (acquisition of a threshold or more based on voting rights rather than on the total number of issued shares), and the “acquisition of business or succession of business by way of corporate split (absorption-type) (kyushu bunkatsu) or merger from a resident” have been also added to the subject of the prior filing requirement under the Amended Act.

 

Q8:       What is a “Closely-related Person(s)”?

A8:        This is a person who is closely related to a Foreign Investor and where the Foreign Investor proposes at a shareholders meeting for someone to be appointed as a board member, as discussed in A7.  Where the proposal is made by a Foreign Investor, the Closely-related Person(s) include its directors, officers, employees, and major business/trade partners.  Where the proposal is made by another party (including the issuing company), that definition includes its directors and officers.

 

Please note that the same concept of Closely-related Person(s) is used in the context of the appointment of directors and corporate auditors in the standard (See A11) as a requirement for the regular exemption at the time of acquisition of shares.

 

Q9         What changes are made to investment funds?

A9:        Previously, with regard to investment funds, if each general partner (GP) or limited partner (LP) was determined to be a Foreign Investor, such GP or LP was obliged to make a filing regardless of its investment ratio in the partnership.

 

This amendment has changed the framework and has established a new category of Foreign Investors called “Specified Partnership”.  If the investment ratio of Foreign Investors in the partnership is 50% or more, or if the majority of the GPs are Foreign Investors, the relevant fund will be deemed to be a Specified Partnership.

 

Please note that even if a Specified Partnership has an obligation of prior filing, it may use the exemption it the relevant requirements are met.

 

Q10        What is the content of the new scheme of exemption of filing?

A10:       While the Amended Act expands the scope of actions subject to prior filing and reduces the threshold of shareholding from 10% to 1%, the Act has established a new exemption scheme, where a company or individual would be exempted from the prior filing requirement at the time of acquisition of listed shares where such acquisition would not likely to fall into the category of foreign direct investment related to national security.

 

The Draft stipulates two types of exemption.

(1)          Blanket Exemption

The first one is a “blanket exemption” which is expected to be available for foreign financial institutions (See A13).  An acquisition of listed shares by foreign financial institutions will be exempt from the prior filing requirement if the institution meet the standard requirements listed in A11, regardless of the ratio of shareholding and whether the target company is in a core industry.

 

(2)          Regular Exemption

The second one is a “regular exemption”. According to the publication issued by the MOF, this is expected to be available for investors generally, as well as certain certified sovereign wealth funds and public pension funds (“SWF”).  As to the SWF, the MOF has indicated that it will review the following two conditions, and then execute a memorandum of understanding (the contents of which are not disclosed) with the qualified SWF.  The conditions for a regular exemption provided in the Draft are:

(i) The investment scheme of the SWF is aimed purely for economic profit; and

(ii) The decision-making of the SWF is independent from foreign governments.

 

Regular exemptions will be granted for the acquisition of shares:

(i)  in non-core industries, if standard requirements (See A11) are met; or

(ii) of less than ten percent (10%) of a company in a core industry, if the additional requirements (See A11), in addition to the standard requirements are met.  Acquisition of the shares of ten percent or more will not be exempted and be subject to prior filing.

 

Q11        What are the requirements (i.e., the standard and the additional requirements) for the exemptions?

A11:

(1)         Standard Requirements

In both cases of blanket and regular exemptions, the following standard requirements stipulated in the Draft need to be met for exemption from prior filing.[6]

(i) Foreign Investors or their Closely-related Persons(s) shall not assume the offices of director(s) or corporate auditor(s);

(ii) Foreign Investors shall not propose a transfer or dissolution of the business within the scope of a Designated Sector to the general meeting of shareholders; and

(iii) Foreign Investors shall not access undisclosed technical information relating to the business within the scope of the designated industry.[7]

 

(2)         Additional Requirements

As described in A10, where a regular exemption is available, acquisition of 1% or more but less than 10% of shares within the scope of the core industry will be exempted from prior filing if the Foreign Investor meets the standard requirements AND the additional requirements.  The details of the additional requirements are as follows:

(i)    Foreign Investors shall not participate in committees of the company that have the power or authority in important decision-making with regard to businesses belonging to core industries; and

(ii) Foreign Investors shall not submit written proposals to the Board of Directors of the company for businesses belonging to core industries which request a response and/or action from the Board within a specified time limit.

 

Q12        What types of Foreign Investors are not eligible for exemptions?

A12:       Those who have been sanctioned for violation of the Foreign Exchange Act, foreign governments, and state-owned enterprises are not eligible for exemption, and are subject to the prior filing requirement and subject to examination.  However, certified SWFs (although state-owned) could obtain a regular exemption as described in A10 above.

 

Q13        What are “foreign financial institutions” in Q10?

A13:       A foreign financial institution means a person(s) which is engaged in the following items and under the regulation and supervision under the laws and regulations in Japan or a foreign country:

  • Type I financial instruments trading business (security houses);
  • Banking business;
  • Insurance business;
  • Investment management business;
  • Investment-type trust business;
  • Registered Investment Corporations (Corporate-type Investment Trusts); or
  • High-speed traders under the Financial Instruments and Exchange Act.

 

Q14        How is the examination of a filing conducted?  How long will it take until the clearance is obtained?

A14:       According to the MOF, an examination will be carried out exclusively from the viewpoint of the purpose of this law; i.e., to prevent the leakage of technical information pertaining to national security and the loss of business opportunities. The MOF expects that for the actions which do not pose any issues from the viewpoint of national security, a notice of clearance would be issued within five business days from the filing. Nevertheless, the items of the detailed examination have not yet been defined.

 

Q15        Will the Draft have an impact on shareholder activists?

A15:       In the MOF’s “Frequently Asked Questions on Foreign Exchange Law Amendments” on its website[8], the MOF indicates that, “this amendment aims to further promote sound investment while preventing the leakage of technical information and business activities related to national security, etc., and does not aim to block activists… Of course, exercising shareholders’ rights and the dialogue with shareholders are welcomed from the viewpoint of enhancing corporate governance, and it does not impose any additional restrictions on the exercise of shareholders’ rights and the dialogue with shareholders that are not related to the aim of the amendment of the law”   Nevertheless, the requirements and additional requirements stated in A11 are related to the basic shareholders’ rights that activists generally exercise, and thus the Amended Act will have a significant impact on activist activities.

 

Q16        What are the restrictions on acquiring shares in unlisted companies?

A16:       The restrictions applied for the acquisition of listed shares in Designated Sector will also be applied to the acquisition of shares of unlisted companies. In other words, if an unlisted company to which an investment is made carries out a business in a core industry, the prior filing will generally be required.  If an unlisted company to which an investment is made carries out a business in a non-core industry, the prior filing will generally be required, but if it meets the requirements of a regular exemption (See A10), it will be exempted from the prior filing requirement.

 

Q17        What is the schedule and timing of the enforcement and implementation of the new law?

A17:       The Draft was released on March 14, 2020 with a 30-day public comment solicitation period until April 12, 2020.  The materials published by the MOF indicates that the Cabinet will decide to finalize and announce the Cabinet Order and a list of companies engaged in core businesses (See A6) in late April, and the Cabinet Order, the Ministerial Ordinances and the Notices are scheduled to be promulgated in between late April and early May, all of which will come into effect on the date of enforcement of the Amended Act.  Therefore, the enforcement date is scheduled to be no later than May 29, 2020.[9]  The rules under the Amended Act will apply to foreign direct investment made on or after the date on which 30 days have elapsed from the date of enforcement.[10] The MOF is considering the introduction of transitional measures to enable companies to make prior filings under the Amended Act after the date of enforcement but before the date of implementation (See our next newsletter (click here) for updated schedule).

 

Going Forward

This Amended Act has been prepared within a short period of time between its drafting, establishment, and enforcement, and the changes in the items and information to be stated in the prior filing forms have not yet been clarified.  As mentioned above, the list of the companies engaged in a Designated Sector will be later published.  If the new rules are implemented as scheduled, there will likely be confusion in the practice of drafting filings, since a number of items are not clear, and thus, a considerable number of filings will need to be made to clarify the appropriate practice of making these filings.  For investors and companies that may potentially become Foreign Investors, it will be necessary to quickly understand the outline of the new rules and prepare an internal business flow for foreign exchange law filings, as well as obtain external consultation so that they can quickly respond to the changes of the Amended Act which may impact the acquisition of shares in listed companies, appointment of board members for their portfolio companies, and handling of voting rights in such companies.  In addition, Japanese companies falling under the category of a Designated Sector and/or listed on the MOF’s company list need to pay close attention to the movement of the Draft so that they can respond timely to inquiries from Foreign Investors preparing to fill in the required items in the filing forms.

 

 

[1]   As of March 27, 2020, the draft cabinet order, ministerial ordinance and public notices were subject to public comments (https://search.e-gov.go.jp/servlet/Public?CLASSNAME=PCMMSTDETAIL&id=395122004&Mode=0). The main text of this newsletter refers to the draft cabinet order for partial revision of the cabinet order related to inward direct investment, draft order for partial revision of the order related to inward direct investment, draft public notice of business types determined by the Minister of Finance, draft public notice of business types determined by the Minister of Finance, draft public notice of standards for foreign direct investment pertaining to national security, draft public notice of standards for specified acquisition.

Please note that the English terminologies used in this newsletter may not always be identical to those used in the materials published by the MOF, although we have tried to adopt them as much as possible

[2] https://www.mof.go.jp/english/international_policy/fdi/kanrenshiryou_20200325.pdf.  Please note that while this chart indicates the case of “50% or more in total”, the test of “control” may qualify other affiliates as a “subsidiary” under the Company Act.

[3] Based on materials provided by the MOF.

[4] Ibid.

[5] Nihon Keizai Shimbun, February 21, 2020; Nikkei Asian Review, February 21, 2020

[6] Items (1) to (3) of Article 2 of the Act on Foreign Exchange and Foreign Trade, which prescribes standards for ensuring that foreign direct investment specified by the Minister of Finance and the minister having jurisdiction over the business does not fall under the category of foreign direct investment pertaining to national security pursuant to Article 27-2(1) of the Act on Foreign Exchange and Foreign Trade.

[7] Undisclosed technical information refers to confidential technology of a business in a core industry.

[8] https://www.mof.go.jp/international_policy/gaitame_kawase/press_release/faq_191025.pdf (Japanese)

[9] The Amended Act shall come into effect within six months of the date of promulgation, November 29, 2019.

[10]Article 3 of the Supplementary Provisions of the Amended Act

 

(Released on May 08, 2020, based on the Japanese version released on March 27, 2020)

 

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Sonderhoff & Einsel routinely provides advice on foreign trade regulations, including the Foreign Exchange Act, and related regulatory issues in M&A, contract drafting and amendment, negotiations, litigation & arbitration, employee training, and responses to authorities.

 

The information provided in this document is only general information and does not provide specific professional advice. The views expressed in this newsletter are a personal one of the author and do not constitute a legal opinion of the firm.  For inquiries, please contact Naoki Watanabe, the author of this newsletter at: .

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Provisions on Restoration of Patent-Related Rights Following the Pneumonia Epidemic Caused by the Novel Coronavirus in China

Newsletter (March 2020) │ IP Practice

The outbreak of pneumonia caused by the novel coronavirus has severely affected various sectors in China. In the field of intellectual property, the restoration of patent related rights lost due to novel coronavirus-induced pneumonia is a problem that is attracting attention.

The China National Intellectual Property Administration (CNIPA) made an announcement entitled “Explanation on the relevant deadlines for patents, trademarks, and layout designs of integrated circuits during the period of epidemic of pneumonia caused by the novel coronavirus” (i.e., Bureau Announcement 350) on January 28th, 2020, an announcement entitled “Response to specific issues related to the procedure for restoration of rights related to the epidemic of pneumonia caused by the novel coronavirus” on February 3rd, 2020, an announcement on “Further explanation on the relevant deadlines for patents, trademarks, and layout designs of integrated circuits during the period of the pneumonia epidemic caused by the novel coronavirus” on February 21st, 2020, and an announcement entitled “Explanation on matters related to the payment of delinquency for patent pensions during the pneumonia epidemic caused by the novel coronavirus” on March 4th, 2020. This series of announcements explains the provisions, procedures and payments necessary to restore patent-related rights.

This article summarizes the restoration of patent-related rights that have been lost due to the pneumonia epidemic caused by the novel coronavirus. In the future, depending on the status of the infection, the government may issue further related policies and regulations, so it is necessary to obtain such information promptly in order to avoid adverse effects on your company. We recommend that you always instruct local agents in advance if you would like them to take steps to maintain the continuity of rights, thus avoiding their loss.

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IP Practice: 2018(Ne)10063 Appeal Case of Seeking Injunction and Compensation against Patent Infringement

Newsletter (November 2018) │ IP Practice

Ⅰ. Facts of the case

 

Appellee/Plaintiff Medion Research Laboratories Inc., who owns two patent rights concerning an invention entitled “Carbon Dioxide-Containing Viscous Composition”.

Appellant/Defendant NeoChemir Inc. ,COSMEPRO CO.,Ltd ,AIRICA Co.,Ltd ,CHIARA MACCHIATO Co.,Ltd ,WINGSENSE CO.,Ltd ,Cosmebose Inc. ,CLEAR NOIR Co.,Ltd produced and sold carbonate pack cosmetic, which allegedly fall within the technical scope of the Appellee’s invention.

 

Ⅱ. Procedural History

 

Appellee/Plaintiff sought injunction of the production and sales of the defendant’s products, disposal of said products and claimed compensation for damage on the ground of tortious acts of patent rights infringement according to Article 100 (1)(2), 102 (2) Patent Act in the Osaka District Court (Case Number:2015(Wa)4292). The Osaka District Court decided in favor of the plaintiff to which the Defendant appealed.

 

III. Issues

 

The IP High Court had to decide on three major issues, which are the following:

–             Which expenses should be considered in the calculation of damages?

–             What circumstances must be considered in the rebuttal to presumption of Article 102 (2) Patent Act according to the damages incurred by the Appellee to the profits gained by the Appellant?

–             What is a reasonable royalty rate in an infringement case and what circumstances must be considered?

 

Ⅳ. Holding

 

The court held, that only those expenses which are directly related with the manufacture and sale of infringing products, e.g. R&D costs, promotion and advertising costs, are deductible. The court held, that the following circumstances must be considered:

[i] a difference between patentee’s business and infringer’s business (non-identity of the market);

[ii] the presence of competing products in the market;

[iii] marketing efforts of infringer (branding, advertisement); and

[iv] performance of infringing products (features other than patent invention including function and design).

Lastly the court held, that a reasonable royalty rate in an infringement case in the pharmaceutical industry would not fall below 10% as long as industry standards, the importance of the patent and the competitive of the parties is considered.

 

Ⅴ. Reasoning

 

  1. Amount of profit earned by an infringer due to an infringing act as provided in Article 102, paragraph (2) of the Patent Act

In the case where the patentee is faced with difficulties proving the amount of damages caused by the infringement, the profit made by the infringer should be deemed the amount of damages. Although the amount of profit made by the infringer should be construed as a marginal profit in which only additional costs directly related to the manufacture and sales of the infringing product may be deductible. In this case a part of experiment and research costs, promotion and advertising costs were deductible.

 

  1. Ground for rebuttal to presumption under Article 102, paragraph (2) of the Patent Act

It is construed that an infringer should bear the burden of proving circumstances which rebut the presumption under Article 102 paragraph (2) of the Patent Act by hindering a legally sufficient cause between the infringer’s profit and the patentee’s damages. However, mere fact that the patent invention is implemented for only a part of the infringing products doesn’t directly lead to the rebuttal of the presumption Further, should there be circumstances where an infringing product causes effects superior to the products of patentee or an infringing product is an implemented product of the other patent invention, it would not directly lead to the rebuttal to presumption.

 

  1. Amount to be paid under the provision of Article 102, paragraph (3) of the Patent Act

The main principle in calculating damages under the provision of this paragraph should be on a sales figure basis of infringing products by multiplying the sales figure by a royalty rate to be paid for the implementation. In determining the reasonable royalty rate for an infringement case it must be considered that the infringer could operate without any contractual restrictions and would therefore benefit from an industry standard royalty rate.

Therefore, in an infringement lawsuit, a royalty rate to be paid for the implementation should be determined as reasonable by comprehensively taking into account the following circumstances appearing in a lawsuit:

[i] A royalty rate set in the actual license agreement for the patent, or if it is indefinite, an average royalty rate in the industry;

[ii] The value of the patent; i.e., the technical content or significance of the patent invention, and the substitutability with alternative technology;

[iii] Contributions of the patent to sales and profits and a manner of infringement; and

[iv] a competitive relationship between patentee and infringer as well as a business policy of the patentee.

Therefore it is reasonable to conclude that a royalty rate would not fall below 10% by taking into account the above mentioned circumstances.

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