Over the course of our research and after conducting interviews with lawyers across a spectrum of practice areas in the Japanese market, several trends have become noticeable in the area. Outbound M&A continues to be a focus for corporate lawyers and significant attention is also being paid to arbitration, with the goal of making Japan a destination for conducting international proceedings. Additionally, there is considerable interest from foreign investors in the real estate, life sciences and intellectual property markets, all of which contribute to the strength and appeal of the Japanese market.
The arbitration market remains a key area of interest for practitioners, as well as the country as a whole. The practitioners we interviewed highlighted the efforts by the government to increase the appeal and reputation of Japan as an arbitral seat, seen most clearly in the decision to build the Japan International Dispute Resolution Center in Osaka, which began its first hearing in May 2018. There are now plans afoot to build a second arbitration centre in Tokyo, before the 2020 summer Olympics. Considering the recent opening of the Japan International Mediation Center in Kyoto, it is clear the government is taking concrete steps to aggressively market the jurisdiction as an alternative dispute resolution hotspot, particularly with regard to commercial proceedings.
However, despite these efforts, practitioners note that uptake on arbitration has been slow, with one practitioner noting, “In terms of hardware, the infrastructure is increasingly in place, but it’s hard to say for sure that it will succeed.” Others confirm this, stating, “The number of arbitration proceedings is still very low, partly because most Japanese companies are very confident in courtrooms and litigation.” This idiosyncratic cultural approach is relevant, with practitioners often highlighting that traditional feelings towards dispute resolution can potentially undermine the potential for arbitration’s popularity. One practitioner affirmed, “The culture is much more directed towards settlement, which doesn’t always work well for Japanese companies in the context of international arbitration.” Having well-established arbitration seats nearby in Singapore and Hong Kong is another headwind for the Japanese market, as they siphon off much of the high-profile work in the region.
There are feelings from practitioners that in spite of these challenges, the rise of arbitration is likely. One source notes, “There is a new realisation that arbitration is the way to go for Japanese companies, so the market is starting to change and is much different compared to 25 years ago.” Another commentator seconds this, stating that “the arbitration market is kind of waking up” and gives two reasons for the likelihood of arbitration’s success: “Pure marketing, and [the fact] that Japanese firms are making themselves more attractive to prospective clients by being able to manage a complete arbitration from start to end.”
The intellectual property market is highly established, with foreign and domestic firms offering clients their considerable expertise in handling contentious and non-contentious proceedings in the space. Practitioners in the area identified a number of developments that they see as significant to the market, highlighting a rise in applications, increased activity arising in relation to Chinese companies and a commoditisation of IP prosecution.
Generally, practitioners highlight an increase of work across the market in the patents and trademarks areas. One practitioner attributes this to a currently positive outlook on the economy, prompting clients to be more willing to prosecute patent cases. Others note that this increase in matters is seen predominantly in smaller cases, with one commentator stating, “10 years ago my practice was very different. I used to be working on bigger but fewer cases, but this has switched recently and there are no real blockbuster cases anymore.” Other respondents reflect that this increase in high-volume but small-size patent prosecution is leading to a commoditisation of prosecution matters, while also stating that companies are taking this work increasingly in-house – Huawei, for example. These two factors – an increase in small-scale cases, and a rise in major cases being handled by corporate counsel – are leading to a fall in fees and a serious degree of competition in the area.
Practitioners in the trademarks field agree, stating that the number of applications has been increasing: “It used to take six to seven months to complete an application of a trademark – now it takes 11.” This is reflected in the numbers coming out of Japan on the trademark side, with the World Intellectual Property Organization recording a 109 per cent increase in trademark filings between 2013 and 2017. Sources also note an explosion of work coming out of China, with a focus on the telecommunications sector.
The employment space has experience significant changes in recent years, as traditional mindsets around intensive working practices shift. Practitioners point to Prime Minister Shinzo Abe’s work reform legislation that was passed in June 2018, which takes steps such as capping overtime work and promoting annual leave. Sources highlight the general attitude change, and identify “more and more emphasis towards improving work-life balance and as a result, more work for companies to meet those regulations”. These changes are prompting a significant basis of work for lawyers, who are assisting clients and helping them to become compliant with the new approach to working.
Other developments in the space include an increased focus on the rights of part-time workers, which as part of Abe’s initiative are held to an equal standard and treatment as full-time workers, as well as increasing scrutiny of professionals’ behaviour in the context of sexual harassment claims and gender equality practices.
Japan continues to be a highly competitive jurisdiction for lawyers, with practitioners from many of the practice areas we cover identifying a rise in competition from other firms and seeing a drop-off in fees more generally. It is important to note a distinction between the domestic firms and international players who are not able to practise in local matters. Due to this split, practitioners have noted that while “many new foreign firms are appearing in the Japanese market, they are not usually affecting the overall balance too much”. Anderson Mori & Tomotsune, Nishmura & Asahi, Nagashima Ohno & Tsunematsu and Mori Hamada & Matsumoto continue to dominate among the domestic firms, while international firms (including Morrison & Foerster and White & Case) focus on high-value cross-border work, excelling in handling matters such as international financings of real estate deals and multi-jurisdictional corporate transactions.
With a fierce level of competition, practitioners are experiencing some changes, with one respondent noting, “More people are moving to smaller firms, impacting the mid-tier firms.” Others see the challenges to lie more in pricing, observing, “There is a lot of pressure on fees.”
While the Japanese legal market generally is relatively small, the expertise and technical knowledge of the high-level practitioners is evident, and they provide clients with top-tier counselling and representation. In the face of considerable competition from other firms, changes in foreign markets and shifts in legislation at home, lawyers are constantly required to innovate and future-proof their practices – for example, turning to AI to offset certain costs and improve efficiency.
Key practice areas for the future include a continued focus on M&A and outbound investment, while intellectual property and real estate represent stable and profitable sectors for firms. Looking further ahead, some firms are placing an emphasis on a potentially strong arbitration market, while advances in technologies such as 5G could be a key development for the data sector.