Clifford Chance

Tokyo District Court decided in a recent case that manipulating rankings using an algorithm constituted an abuse of a superior bargaining position and a breach of the Anti-Monopoly Act.

Summary of court decision

On 16 June 2022, Tokyo District Court issued a decision on a lawsuit filed by a restaurant chain against the operator of the website "Kakaku.com" (Kakaku.com) claiming damages on the grounds that the restaurant chain had suffered damage as a result of Kakaku.com's breach of the Anti-Monopoly Act (the "Decision"). The court found that Kakaku.com's conduct constituted an abuse of a superior bargaining position, which is prohibited by the Anti-Monopoly Act, and approved the restaurant chain's claim, ordering Kakaku.com to pay approximately JPY 38.4 million (approx. EUR 270,000) in damages.

Details of the case

Kakaku.com had been using an 'algorithm' as its own standard for determining rating scores and displaying the ranking of each restaurant on its website, but in May 2019 it changed its standard to deduct points from all chain restaurants' ratings. The plaintiff claimed that this change in criteria resulted in a reduction in the number of points obtained and a decrease in the number of customers visiting the restaurant via the website run by Kakaku.com. The court decided that the change in the algorithm was unfair, and resulted in an unexpected disadvantage for the restaurant chain, and therefore constituted an abuse of a superior bargaining position. This court decision is seen as the first judicial decision in which the validity of an algorithm was disputed before a Japanese court, and may have an impact on future methods of assessment by site operators.

JFTC Study Group's opinion on algorithms/AI and competition policy

On 31 March 2021, prior to the Decision, the Study Group on Competition Policy in Digital Markets (the "Study Group"), one of the study groups of The Japan Fair Trade Commission (JFTC), published a report entitled "Algorithms/AI and Competition Policy" (the "Report"). The Report is the first in Japan to extensively examine the issues surrounding algorithms/AI and competition policy. The Report identifies the following three types of use of algorithms/AIs that could have a significant impact on competition at present:
(i) Price searching and price setting using algorithms (e.g. operators using algorithms to understand the prices of competing operators in order to compete with their prices);
(ii) Ranking manipulation (i.e. algorithms displaying, in a ranked format, from among a large number of products and services, those that have a high probability of meeting the needs of consumers); and
(iii) Personalisation (i.e. the collection and analysis of data on consumer attributes and purchasing trends, and the personalisation of product proposals and digital advertising in online malls for each consumer).

With regard to (ii) above, the Report states that if leading operators obstruct transactions between competing operators and consumers, such as by arbitrarily manipulating rankings to display their own products in a higher position and treat them favourably, it may restrict competition, which is prohibited by the Anti-Monopoly Act.
The Decision is noteworthy as it is the first time a court has found that the Anti-Monopoly Act has been violated in situation (ii) of the Report.

Impact on business

Algorithms/AI are generally used with the aim of making business activities in the digital market more efficient and improving convenience for consumers in all areas. On the other hand, depending on how the algorithm/AI operates, it could affect competition and violate the Anti-Monopoly Act. Platform operators and the business users need to keep a close eye on developments at the JFTC, and relevant courts cases.