Tasuku Mizuno: Legal Design for DX

2021/03/18

In preparation for the establishment of the Digital Agency (provisional name), several digital reform-related bills were approved by the Cabinet in February 2021, and are scheduled to be passed during the 204th ordinary session of the Diet convened in January. In this article, I will first provide an overview of the contents of these digital reform-related bills recently approved by the Cabinet, and then offer my personal views on the remaining challenges and the essence of "legal design" (the design of law) for DX (Digital Transformation).

First is the Basic Act on the Formation of a Digital Society (hereinafter referred to as the "Basic Act on Formation"). The Basic Act on Formation defines the "digital society" to be aimed for (Article 2) and, as the name "Basic Act" suggests, stipulates ten basic principles and defines the responsibilities of the state, local governments, and business operators in accordance with those basic principles. A characteristic feature is that it stipulates the responsibilities of business operators based on the principle that the private sector should play a leading role (Article 9). It also serves as the foundational law for the Digital Agency Establishment Act (draft) approved by the Cabinet at the same time. Digitalization is a means, and if the vision of the society to be realized through digitalization is ambiguous, it may end up as a mere pie in the sky. The fact that the vision of the "digital society" (Article 2) that the government aims for in the future has been codified by the Basic Act on the Formation of a Digital Society is a significant achievement. Going forward, it is expected that the law will not be allowed to become a hollow, abstract statement of principles, but will be utilized in policy as a foundational law for subordinate laws and independent local ordinances.

While the importance of the Basic Act on Formation as a basic law goes without saying, the Act on the Development of Related Laws for the Formation of a Digital Society (hereinafter referred to as the "Related Acts for Development") has a greater practical impact. In order to implement measures related to the formation of a digital society based on the aforementioned Basic Act on Formation, it includes: (1) a review of the personal information protection system, (2) streamlining the My Number system and fundamentally improving the convenience of My Number cards, and (3) a review of various procedures requiring seals and the delivery of documents. Regarding (1) above, the issue where rules for personal information protection were fragmented across three laws—the Act on the Protection of Personal Information, the Act on the Protection of Personal Information Held by Administrative Organs, and the Act on the Protection of Personal Information Held by Independent Administrative Agencies—for companies, the state/local governments, and independent administrative agencies (the so-called "2000 Problems") will be integrated into a single law to provide common rules. Regarding (3) above, there are transactions, such as in the real estate field, where seals and documentation are legally required in situations where cautious transactions are necessary. These have been hurdles for the introduction of electronic contracts such as CloudSign, but the obligation to use seals will be abolished, and the obligation for documentation will be relaxed.

While some view DX as mere digitalization, as the Basic Act on Formation clearly states that a requirement for a "digital society" is to "freely and safely obtain, share, or transmit diverse information or knowledge on a global scale through the Internet and other advanced information and telecommunications networks" (Article 2), the biggest key to DX is how to smoothly share and utilize digitalized information—that is, the realization of advanced data sharing. However, as a legal system, there are still major hurdles to the realization of advanced data sharing. Specifically, because data contains or is mixed with personal information, privacy, copyrighted works, trade secrets, etc., it is subject to the regulations of the Act on the Protection of Personal Information, the Copyright Act, the Unfair Competition Prevention Act, or tort law, and these must be examined one by one. It is no exaggeration to say that whether these information laws can be adjusted toward advanced data sharing without undermining the values cultivated by democratic societies directly relates to the feasibility of realizing a data-sharing society. Such legal system challenges are not unique to Japan; the US and EU face similar issues. However, the conflict is intensifying due to the growing influence of China, which emphasizes the convenience and economic efficiency of data sharing over personal information and privacy protection, as well as public health requirements during the COVID-19 pandemic. While it might be said that the aforementioned digital reform-related bills have eliminated most of Japan's unique legal obstacles regarding data sharing, the core of the problem remains unchanged.

Of course, the government is also aware of the aforementioned legal issues, and each law has been making efforts to realize data sharing. For example, in the Act on the Protection of Personal Information, the 2020 amendment established a new pseudonymized information system to contribute to internal analysis for the purpose of promoting innovation, and the operation of the Act on Anonymized Medical Data That Are Meant to Contribute to the Development of New Medical Technologies and Services, aimed at promoting advanced R&D and the creation of new industries related to health and medical care, has also begun.

In the Copyright Act, the introduction of flexible rights limitation provisions in response to the progress of digitalization and networking in the 2018 amendment has made the use of new works utilizing new technologies easier compared to other countries, and these are being utilized in practice. Additionally, the Compensation System for Public Transmission for Educational Purposes, also established by the same amendment, was implemented in April 2020, earlier than originally planned, to urgently respond to needs such as remote classes accompanying the spread of COVID-19. Furthermore, the Agency for Cultural Affairs is proceeding with discussions toward amending the law to facilitate rights clearance related to simultaneous internet streaming of broadcast programs, and the Intellectual Property Strategy Headquarters is also discussing the promotion of centralized management of works and a Japanese version of the Extended Collective Licensing system (*1) to facilitate the use of works.

There are likely two major radical approaches to realizing a data-sharing society. One is the approach of amending each law individually. However, the Ministry of Internal Affairs and Communications is in charge of personal information protection-related laws, the Agency for Cultural Affairs for copyright, and the Ministry of Economy, Trade and Industry for the Unfair Competition Prevention Act, meaning there is no "control tower" for the rules of data sharing as a whole. The Digital Agency is expected to serve as this control tower, but since each law has a different history and different underlying human rights and justifications, it remains to be seen whether coordination can be achieved across these ministerial silos in a direction that promotes data sharing.

The other approach is to enact a general law concerning data sharing, such as a "Data Act," separately from the aforementioned laws. For example, the EU has set out a concept to enact a "Data Act" in 2021 as a comprehensive legal framework for data, based on the "European Strategy for Data" announced by the European Commission in February 2020. However, even in the EU, it must be said that it remains unclear whether they can build the logic and achieve the coordination necessary to truly "overwrite" or "supplement" fundamental legal systems such as the personal information protection system like the GDPR enacted in 2016 or the copyright system including the DSM Copyright Directive enacted in 2019.

When considering what legal design for DX is, the destination is the fundamental challenge of how to shape the interaction and symbiotic relationship between technology and law. The words of President Kersti Kaljulaid of Estonia, which is hailed as a digital nation—"A digital state is not about technology, but about the carefully crafted legal framework around it"—express this essence in beautiful words.

At the end of this article, I would like to list three key perspectives and initiatives.

The first is how to link the review of regulations and legal systems through experiments and demonstrations based on new technologies, and how to create a cycle between rule hacking and rule making (*2, 3). From that perspective, it is noteworthy that the Cabinet also decided in February 2021 to transfer the "Regulatory Sandbox System," which was a temporary measure, from the Act on Special Measures for Productivity Improvement to the Act on Strengthening Industrial Competitiveness and make it permanent.

The second is ELSI/RRI, which re-examines the interaction between technology and law from a long-term and fundamental perspective (*4). ELSI/RRI refers to initiatives to research and address ethical, legal, and social issues arising from the development of science and technology in advance. It intends for diverse stakeholders to participate throughout the entire process from research to innovation, promoting science and technology in a way that aligns with social needs and expectations. In the future, it may be necessary to proceed with a wide range of initiatives related to ELSI/RRI integrated with R&D and innovation efforts from the perspective of the symbiotic relationship between technology and law.

The third is institutional design to secure data commons. Despite the enforcement of the Basic Act on the Promotion of Public and Private Sector Data Utilization in 2016, which obligated the state and local governments to work on open data, the enrichment of open data lags far behind other countries. To realize DX, it is necessary to bolster this point as well. As symbolized by the phrase "Data is the crude oil of the 21st century," as the value of data is proclaimed, calls for data ownership will likely increase further in the future. However, originally, ownership cannot be conceived for intangible data and information; only usage rights and access rights are established. A legal system that grants exclusive monopoly rights over data to specific individuals would be a major obstacle to data sharing. Furthermore, to compete against giant US IT companies that already have access to massive amounts of data, it is necessary to enrich data that anyone can freely access. Not only public open data that can be freely utilized, but also data acquired by companies should be turned into data commons under certain conditions. This will become increasingly important from the perspective of international competitiveness, and from the perspective of the technological sovereignty of Japan and each of its citizens.

*2 My article "Circulate Rule-Making and Hacking" (WIRED)

*3 Regarding this point, the Ministry of Economy, Trade and Industry has summarized a model in a report where companies become the central players, moving away from the traditional model where the state handles everything from rule design to monitoring and enforcement. "GOVERNANCE INNOVATION: Redesigning Law and Architecture for the Realization of Society 5.0" Report