Newsletter

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).

Continue Reading

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

Continue Reading

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)

 

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

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: .

ニュースレター購読
Continue Reading

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)

 

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

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: .

Continue Reading

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.

Continue Reading

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.

Continue Reading

IP Practice: Update of Patent Linkage System for Pharmaceutical Products in Taiwan

Newsletter (August 2019) │ IP Practice

The patent linkage system for pharmaceutical products, which was added in response to the revised Taiwanese Pharmaceutical Affairs Law, has officially gone into effect. In addition, the enforcement rules and detailed procedures for implementing the patent linkage system have also been implemented.

 

For details, please check the following PDF.

Continue Reading

IP Practice: “Interpreting Standards of Amendments to Markush Claims in Invalidation Proceedings from the Perspective of a Retrial by the Supreme People’s Court of China”

Newsletter (November 2018) │ IP Practice

In Patent Law, a Markush claim is a special type of claim commonly used in the chemical and
pharmaceutical fields when there are a number of variables in one claim and each variable
has multiple options. Once a compound claimed by a Markush claim is patented, its scope of
protection can extend to all the compounds encompassed therein regardless of their effect.

 

In China, the Guidelines for Patent Examination 2010 contains provisions regarding the
unification of Markush claims, but are otherwise silent on this subject (Guidelines for Patent Examination 2010, part II, Chapter 10, 8.1 Unity of Markush Claims). The nature of
Markush claims and the criteria for amendments has long been a subject of practical and
theoretical discussion (Invalidation trial for ZL94115915.9, ZL97197460.8).

 

On the retrial of the “Administrative Judgment No. 41 [2016], Retrial, Administrative
Division, Supreme People’s Court”, following three years of careful deliberation, the
Supreme People’s Court of China finally released a judgement which clarified the nature of
Markush claims and the criteria for amending such claims in invalidation proceedings. This
judgement will likely resolve issues where trial court’s criteria has been different and
provides guidance for judging similar cases in the future.

 

For details, please check the following PDF.

Continue Reading

Law Practice: “Workplace Harassment Comes in Many Forms: How Can You Help Your Company Prevent and Deal with Harassment in the Workplace”

Newsletter (August 2018) │ Law Practice

The #MeToo movement has spread like wildfire in the US, and thanks to social media, the hashtag has brought increased awareness of sexual harassment in the workplace.  The #MeToo movement has also gained footing in Japan, with increased media coverage as a few male politicians and officials have found themselves in the spotlight for alleged sexual harassment acts.  Indeed, the Government of Japan has recognized that power harassment in the workplace is one of the issues to be reviewed as part of Prime Minister Abe’s 2017 Plan for the Implementation of Workstyle Reforms.   On March 30, 2018, a report was issued by Ministry of Health, Labour and Welfare’s (MHLW) Investigative Commission on Measures to Prevent Power Harassment in the Workplace and further discussions will be held in the Labor Policy Council.  Harassment has been a long-standing issue in Japan, but given the government’s renewed focus on harassment, we believe that companies should be aware of the definitions and descriptions of the various forms of harassment and implement certain measures to prevent harassment within its workplace.

Workplace harassment can come in many forms, and the three forms which have often been disputed between the employer and employee are: 1) power harassment; 2) sexual harassment; and 3) maternity harassment.

Power harassment is defined by the “Proposals for Prevention/Settlement of Workplace Power Harassment” (dated March 15, 2012) issued by the Roundtable Conference Regarding Workplace Bullying and Harassment of the MHLW as “an act by an employee using his/her position of seniority or relationship with a co-worker which causes such co-worker mental or physical stress or a degradation of the working environment beyond the appropriate scope of the company’s business.”  It listed six categories of harassment including (i) assault, (ii) intimidation, (iii) isolation or neglect – e.g., where the employee is purposely not invited to company events or when an employee is positioned “near the window” (madogiwa) (iv) forcing an employee to perform unnecessary or impossible jobs, (v) ordering an employee to perform menial tasks which are far below the employee’s ability or experience, and (vi) excessively inquiring into private affairs of the employee.

Sexual harassment in the workplace under the Equal Employment Opportunity Law (EEOL) and MHLW 2006 Guidelines on sexual harassment is described as a non-consensual sexual act in the workplace which causes an unfavorable treatment of an employee or a degradation of the working environment and companies must take necessary measures to prevent such sexual harassment pursuant to the EEOL and MHLW Guidelines.   Sexual harassment has two different categories: 1) Reward/penalty type – where a quid pro quo or penalty is connected to a sexual act in the workplace against the employee’s will such as if an employee is fired for refusing a sexual relationship with his/her boss; and 2) environmental type – where sexual acts related to the work environment have a serious negative impact on the employee’s ability to perform his/her job such as where an employee cannot concentrate on her work due to nude female posters being posted at the office.

Maternity harassment is also described by the EEOL and MHLW 2016 Guidelines on maternity harassment as being “an act in a workplace which causes a degradation of the work environment of a female employee due to her pregnancy or childbirth.”  Further, the company should have internal work rules which provide for certain periods of leave for a pregnant employee based on the Labor Standards Act and the Child and Family Care Leave Act – e.g., allowing for maternity leave for a period of six weeks before the due date and eight weeks after childbirth and for childcare leave.

Indeed, the impact of harassment in the workplace for companies can be profound, as affected employees can suffer from physical and mental health issues, reduced productivity and morale, and job turnover.  Of course the company can be exposed to reputational risk from employee lawsuits as well as potential investigations and warnings from the Labor Standards Supervision Office if such harassment affects the mental health of employees.

What should your company do to help your company prevent and deal with workplace harassment?  The first step would be to have a strong message from top management that expressly states all forms of harassment will not be tolerated within the company.  Next, the company should review its internal work rules (shuugyou kisoku), harassment prevention rules (harassment boushi kitei) and labor-management contract (roushi kyouyaku) and strengthen such rules with respect to the prevention of and disciplining sexual harassment acts.  Prompt announcement of the rules is necessary and thorough implementation through distributing emails, intranet messages, and holding explanation town hall-styled meetings would be recommended.  Companies should also use as a reference, the manual released by MHLW on the introduction of power harassment measures which lists seven basic measures and the MHLW’s Guidelines on Sexual Harassment and Maternity Harassment.

The company should also conduct periodic and anonymous questionnaires to all employees to assess its current employment conditions and implement training on its internal work rules and policies on harassment for new employees as well as periodic training for current officers and employees.  Training should be done company-wide and include training for part-time and temporary employees as well as specific training focused on executives and managers – as many harassment cases involve acts against temporary workers as employees may sometimes believe temporary workers have less “rights” than a full-time employee.  Training can be done internally by an HR department or by outside advisors including lawyers or “industrial counselors” (sangyou counselor).

Finally, a very important measure is to implement a consultation hotline or point of contact within the company.  Employees must be informed where they can go and who they can contact if they are being harassed or have witnessed a harassment incident.  The company can hire an outside law firm or advisor to monitor the hotline.  If the company doesn’t implement a hotline, the harassed employee will have the limited choices of either reporting the incident to the authority or consulting with an outside lawyer, both of which the company would clearly like to avoid.

With the increased awareness of harassment issues by the government, employees, and the media, companies can no longer take an indifferent approach to harassment and must be proactive in implementing the necessary measures to prevent and deal with the many forms of harassment in the workplace.

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

Sonderhoff & Einsel provides legal advice for employers on harassment issues including advising on internal work rules, harassment training, harassment investigations, dispute resolution, and negotiations with the labor authority as well as serving as an external hotline for employee inquiries on harassment.  The information in this letter is provided as general information and is not meant to be provided as specific professional advice.  If you have any specific questions, please contact Grant Tanabe () or Ayuko Nemoto ().

Continue Reading

Tax Practice:“Some important amendments of the domestic tax laws under the Government of Japan’s 2018 Tax Reform with regard to corporate tax, income tax, and gift and inheritance tax”

Newsletter (July 2018) │ Tax Practice

1. Corporate Tax

 

Key points under the 2018 Tax Reform

  • Revision of salary increase tax credit which should benefit corporations
  • Disallowance of tax credits for large-sized corporations
  • Introduction of tax incentives for investment in data collaboration assets
  • Filling tax returns by the e-Tax online filing system

a. Revision of salary increase tax credit which should benefit corporations

 

Before the tax reform, if corporations satisfied the below three requirements, 10% of the increased salary amount from the base period (2013 in case of fiscal year ended December 31) was credited from the corporate tax liabilities with a limitation of 10% of corporate tax liabilities (20% in case of small and medium sized corporations (SMCs)).

 

  1. Total amount of salaries were increased 5% (3% for SMCs) or more from the base period,
  2. Total amount of salaries were increased from the previous year, and
  3. Average salary payments were increased 2% or more (more than the previous year for  SMCs) from the previous year

 

Under the 2018 Tax Reform, the tax credit has increased while the requirements to obtain such tax credit have become more relaxed (the new salary increase tax credit has been applied for the fiscal year starting from April 1, 2018 to March 31, 2021). Under the new regulations, the requirements for the tax credit are separately regulated for large-size corporations and SMCs as follows:

RequirementsLarge-size corporationsSMCs(*)
Salary increaseAverage salary payments are increased 3% or more from the previous yearAverage salary payments are increased 1.5% or more from the previous year
Equipment investmentInvestment for domestic equipment accounts for 90% or more of depreciation expenses in the current yearNot necessary
Tax credit15% of the increased salary amount from the previous year with a limitation of 20% of corporate tax liabilities15% of the increased salary amount from the previous year with a limitation of 20% of corporate tax liabilities

(*)SMCs  are corporations with capital of JPY 100 million or less, excluding corporations with where 50% or more of its shares are held by a large-size corporation  (corporations with capital of more than JPY 100 million or corporations) or 2/3 or more of its shares are held by a number of large-size corporations.

 

Also, for corporations which have invested in their human resources and satisfied the following conditions, the tax credit will be increased as follows:

Large-Size corporationsSMCs
RequirementsEducation and training costs have on average increased 20% or more for the past 2 yearsAverage salary payment was increased 2.5% or more from the previous year and satisfied one of following conditions:

1. Education and training costs have increased 10% or more from the previous year, or

2. The competent minister approved the business plan regarding improvement of management capability and certified the efficiency of the plan.

Tax credit20% of the increased salary amount from the previous year with a limitation of 20% of corporate tax liabilities25% of the increased salary amount from the previous year with a limitation of 20% of corporate tax liabilities

b. Disallowance of tax credits for large-sized corporations

 

If large-sized corporations fall under the below conditions, certain tax credits will be disallowed (this will be applied for the fiscal year starting from April 1, 2018 to March 31, 2021).

 

  1. Taxable income increased compared with the previous year,
  2. But, average salary payment was lower than or equal to the previous year, and
  3. Investment for domestic equipment accounts for 10% or less of depreciation expenses in the previous year

 

The following tax credits will not be allowed:

  • Tax credits for research and development,
  • Tax credits for local future investments, and
  • Tax credits for investment in data collaboration assets

c. Introduction of tax incentives for investment in data collaboration assets

 

“Blue form” tax return corporations, which obtained an approval from the competent minister in connection with an “innovative data use plan” under the Special Measures Act for the Improvement of Productivity, and which invested in certain data collaboration assets (i.e.,  software, and machines or equipment used with the software, except used for research and development purposes) which the total acquisition cost is 50 million yen or more based on the plan, a tax credit or a special depreciation (IoT tax incentive) were introduced.

 

The IoT tax incentive was applicable for the acquisition of assets from the effective date of the Act to March 31, 2021. Corporations which are eligible to receive the IoT tax incentive are able to choose from following tax credit or special depreciation:

Tax creditSpecial depreciation
Average salary payment was increased less than 3%Acquisition cost x 3% with a limitation of 15% of corporate tax liabilitiesAcquisition cost x 30%
Average salary payment was increased 3% or moreAcquisition cost x 5% with a limitation of 20% of corporate tax liabilities

d. Filling tax returns by the e-Tax online filing system

 

Starting from the April 1, 2018 fiscal period, large-sized corporations (except foreign corporations) with capital of more than JPY 100 million must file their corporate and consumption tax returns including interim tax returns by the e-Tax online filing system.  Except for cases where there are unavoidable reasons, filing tax returns by paper will be treated as a non-filing.

2. Income Tax

Key points under the 2018 Tax Reform

  • Reduce 100,000 yen of salary income deduction, and limited 1,950,000 yen
  • Increase 100,000 yen of basic deduction, and exempted total income exceed 25 million yen or more
  • Reduce 100,000 yen of pension income deduction (200,000 yen in case total income exceed 10 million yen, 300,000 yen in case total income exceed 20 million yen), and introduced limitations
  • New income adjustment deduction was introduced

a. Decrease of salary income deduction

 

From the calendar year 2020 (2021 for local inhabitant tax purposes), the salary income deduction will be reduced by 100,000 yen for each salary range with reduced capture of 1,950,000 yen. The salary income deduction before and after the tax reform are as follows:

(Before tax reform, national tax and local inhabitant tax)

Gross salarySalary income deduction
≤ 1,800,000 yenGross salary x 40% (minimum 650,000 yen)
1,800,001 – 3,600,000 yenGross salary x 30% + 180,000 yen
3,600,001 – 6,600,000 yenGross salary x 20% + 540,000 yen
6,600,001 – 10,000,000 yenGross salary x 10% + 1,200,000 yen
≥ 10,000,001 yen2,200,000 yen

 

(After tax reform, national tax and local inhabitant tax)

Gross salarySalary income deduction
≤ 1,625,000 yen550,000 yen
1,625,001 – 1,800,000 yenGross salary x 40% – 100,000 yen
1,800,001  – 3,600,000 yenGross Salary x 30% + 80,000 yen
3,600,001 – 6,600,000 yenGross Salary x 20% + 440,000 yen
6,600,001 – 8,500,000 yenGross Salary x 10% + 1,100,000 yen
≥ 8,500,001 yen1,950,000 yen

b. Increase of basic deduction

 

From the calendar year 2020 (2021 for local inhabitant tax purposes), the basic deduction will be increased 100,000 yen for each gross income range with new capture based on the gross income. The basic deduction before and after the tax reform are as follows:

(National income tax)

Gross incomeBasic deduction   (Before tax reform)Basic deduction

(After tax reform)

≤ 24,000,000 yen380,000 yen480,000 yen
24,000,001 – 24,500,000 yen380,000 yen320,000 yen
24,500,001 – 25,000,000 yen380,000 yen160,000 yen
≥ 25,000,001 yen380,000 yen0 yen

(Local inhabitant tax)

Gross incomeBasic deduction   (Before tax reform)Basic deduction   (After tax reform)
≤ 24,000,000 yen330,000 yen430,000 yen
24,000,001 – 24,500,000 yen330,000 yen290,000 yen
24,500,001 – 25,000,000 yen330,000 yen150,000 yen
≥ 25,000,001 yen330,000 yen0 yen

c. Decrease of pension income deduction

 

From the calendar year 2020 (2021 for local inhabitant tax purposes), the pension income deduction will be reduced by 100,000 yen for each gross pension range with a new capture of 1,955,000 yen. The pension income deduction before and after the tax reform are as follows:

(Age less than 65, national tax and local inhabitant tax)

Gross pension                            (A)Pension income deduction (Before tax reform)Pension income deduction (After tax reform) (*)
≤ 1,300,000 yen700,000 yen600,000 yen
1,300,001 – 4,400,000 yen(A)x25% + 375,000 yen(A)x25% + 275,000 yen
4,100,001 – 7,700,000 yen(A)x15% + 785,000 yen(A)x15% + 685,000 yen
7,700,001 – 10,000,000 yen(A)x5% + 1,555,000 yen(A)x5% + 1,455,000 yen
≥ 10,000,001 yen1,955,000 yen

(*) In the case where gross income (not including pension income) exceeds 10,000,000 yen, the amount of the pension income deduction will be reduced by 100,000 yen as referenced in the above table, and where gross income (not including pension income) exceeds 20,000,000 yen, the amount of the pension income deduction will be reduced by 200,000 yen for each gross pension range.

(Age 65 or more, national tax and local inhabitant tax)

Gross Pension                            (A)Pension income deduction (Before tax reform)Pension income deduction (After tax reform) (*)
≤ 3,300,000 yen1,200,000 yen1,100,000 yen
3,300,001 – 4,100,000 yen(A)x25% + 375,000 yen(A)x25% + 275,000 yen
4,100,001 – 7,700,000 yen(A)x15% + 785,000 yen(A)x15% + 685,000 yen
7,700,001 – 10,000,000 yen(A)x5% + 1,555,000 yen(A)x5% + 1,455,000 yen
≤10,000,001 yen 1,955,000 yen

(*) In the case where the gross income (not including pension income) exceeds 10,000,000 yen, the amount of the pension income deduction will be reduced by 100,000 yen for each gross pension range, and where gross income (not including pension income) exceeds 20,000,000 yen, the amount of the pension income deduction will be reduced by 200,000 yen for each gross pension range.

d. New income adjustment deduction

 

From the calendar year 2020 (2021 for local inhabitant tax purposes), if a taxpayer falls under one of the below categories and his/her current year’s gross salary exceeds 8,500,000 yen, a new income adjustment deduction will be applied.

 

  • A special handicapped taxpayer,
  • A taxpayer who has dependents aged less than 23, or
  • A taxpayer who has special handicapped dependents or special handicapped spouse

 

The new income adjustment deduction will be calculated as follows with a capture of 150,000 yen: (Gross salary – 8,500,000 yen) x 10%

3. Gift and Inheritance tax

Key point of tax reform

  • Revision of gift and inheritance tax obligation for long-term stay foreigners

a. Revision of gift and inheritance tax obligation for long-term stay foreigners

 

Before the tax reform, long-term stay foreigners (foreigners who have kept their domicile in Japan for more than 10 years for the past 15 years) were imposed a gift and an inheritance tax on their worldwide assets within 5 years after their departure from Japan.

 

After April 1, 2018, long-term stay foreigners who have not kept their domicile in Japan are imposed gift and inheritance tax on their assets only located in Japan. But, if they gift assets located outside Japan to a beneficiary after their leave from Japan, and if they return to Japan within 2 years, such gifts will be imposed a gift tax.

Continue Reading