Japanese court finds customer review algorithm change abused ‘superior bargaining power’ – EU Antitrust, Competition

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In a new ruling, the Tokyo District Court ruled that a restaurant rating platform’s unilateral change to its ranking algorithm violated a Japanese antitrust law that prohibits the abuse of “bargaining power”. superior”.

Japan’s Prohibition of Private Monopolization and Maintenance of Fair Trade Act provides extensive restrictions on unfair trade practices, including an “abuse of superior bargaining power”, unique to Japanese antitrust law and distinct from “the ‘abuse of a dominant position’ under European antitrust law. This provision prohibits a company from taking advantage of its “superior bargaining power” and unfairly imposing unfavorable trading conditions on the counterparty in light of sound business practices. The most common application has been vertical agreements between large retailers and their small suppliers in which retailers have requested ex post discounts or the return of goods. In recent years, the Japan Fair Trade Commission (“JFTC”) has broadened enforcement against, for example, the franchisor’s requirements to operate a 24/7 convenience store and the free delivery requirements of an online shopping mall. An aggrieved party may recover damages in a civil action, in addition to filing a complaint with the JFTC. This regulatory framework has often been criticized for being vague and intrusive for free market competition.

Tabelog is an influential restaurant review website in Japan, offering consumer reviews and providing member restaurants with advertising, reviews and online reservation services. The review includes ratings of up to five stars awarded through a unique algorithm based on consumer voting. According to the ruling, Tabelog updated its algorithm, applying a “discount” to chain restaurants that lowered the star rating on the plaintiff’s 21-restaurant chain by an average of 0.2 points, favoring smaller family restaurants. The plaintiff-subscriber to Tabelog’s paid subscription service claimed to have suffered a loss of customers due to the updated rating system, which the court agreed to.

This case highlights the JFTC’s recent focus on digital platforms, similar to other antitrust authorities around the world. The JFTC filed an amicus brief in response to the court’s request, arguing that the algorithm change could abuse superior bargaining power with respect to subscribers who depended on the defendant’s service. The case is the first litigation in Japan in which a court has ruled that unilaterally changing an algorithm by a digital platform is illegal, and the outcome is likely to lead to other cases in the near future. Digital platforms may therefore be faced with a difficult choice: improving a product or improving the user experience may lead to an attack by an aggrieved customer (or the JFTC). Given the scrutiny, digital platform companies operating in Japan planning an algorithm update should assess the interests of different stakeholders and document the consumer and stakeholder benefits of such changes.

Both parties appealed to the Tokyo High Court. The judgment will not become final until these remedies have been exhausted.

Originally published June 2022

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