Japanese court ruling poised to make Big Tech open up on algorithms

Japanese legal experts have said an antitrust case related to a local restaurant website could change how large internet platforms such as Google, Facebook and Amazon operate in the country, forcing them to reveal the inner workings of their secret algorithms.

Last month, a Tokyo court ruled in favour of Hanryumura, a Korean-style BBQ restaurant chain operator in an antitrust case brought against Kakaku.com, operator of Tabelog, Japan’s largest restaurant review platform.

Hanryumura successfully argued that Kakaku.com had altered the way user scores were tallied in ways that hurt sales at its restaurant outlets. While Kakaku.com has been ordered to pay Hanryumura ¥38.4mn ($284,000) in damages for “abuse of superior bargaining position”, the internet company has appealed against the decision.

Japanese legal experts said the outcome may have far-reaching implications, as the court requested Kakaku.com to disclose part of its algorithms.

While the restaurant group is constrained from publicly revealing what information was shown to it, the court’s request set a rare precedent. Big Tech groups have long argued that their algorithms should be considered trade secrets in all circumstances.

Courts and regulators across the world have begun to challenge that position, with many businesses having complained about the negative impact caused by even small changes to search and recommendations services.

“There hasn’t been a case in competition law anywhere else in the world where a court has requested a digital platform to disclose its algorithm,” said Kentaro Hirayama, a lawyer specialising in antitrust issues and formerly with Japan Fair Trade Commission, the country’s antitrust regulator.

“There is now a risk of any platform spending a few years in court and eventually being forced to explain its algorithm to the plaintiff,” he added.

Facebook’s Japanese business said it would not comment on a lawsuit involving other companies, while Google and Amazon declined to comment.

Hanryumura first sued Kakaku.com in 2020, claiming changes that Tabelog made to its algorithm on how user scores are tallied had significantly lowered the ratings of its outlets.

“It’s a pioneering antitrust case about algorithmic manipulation of giant tech platforms in the era of AI,” Katsumasa Minagawa, the attorney for Hanryumura, said after its court victory.

While platforms have provided some information on how their algorithm- based services work, Big Tech companies have generally argued against disclosure.

But that position is under increasing pressure. The EU’s “platform to business” regulation came into effect in 2020, which requires platforms to give businesses more information about how their ranking algorithms work.

A year later, Japan introduced the Act on Improving Transparency and Fairness of Digital Platforms, requiring internet platforms to communicate how algorithms work at a basic level. Five companies — Amazon Japan, Rakuten, Yahoo Japan, Apple and Google — are the targets of the law.

“The act is designed to lean on the anti-monopoly law for sanctioning violators,” said Daisuke Korenaga, professor of competition law at Tokyo Metropolitan University.

“But until now, there had been no precedent for digital platformers being sanctioned over their use of algorithms in Japan. The Tabelog case provides a reference point for punishments in case of violation,” he added.

Koya Uemura, partner at Hibiya Sogo Law Offices, said the Tabelog case “will undoubtedly” lead to more cases questioning the fairness of algorithms under the anti-monopoly law.

“I don’t think the Big Tech companies are seeing this as something that does not relate to them,” he said. “They are sure to be mulling over what risks they could potentially face.”