The Framework

Promulgated on June 19, 2024, Japan’s Smartphone Software Competition Promotion Act (SSCP) introduces regulations for digital platforms deemed essential for smartphone use. After a grace period of up to 18 months, its provisions come into full effect, requiring covered entities—especially those operating mobile operating systems and app stores—to comply with new conduct requirements. The legislation prohibits designated operators from using their market positions to disadvantage competitors or limit consumer choice. It also prohibits “unreasonable discrimination” against app developers, bans prioritizing proprietary applications or services without a legitimate reason, and imposes strict limits on restricting payment methods, linked web pages, or browser engines unless such actions are necessary for cybersecurity. Similar to other ex ante regulations, these rules apply automatically rather than depending on the demonstration of a specific violation through an investigation.[1]

Implications for U.S. Technology Companies

American companies like Apple and Google hold a significant share of Japan’s smartphone software market and are likely to bear the costs associated with the bill’s mandates. They are facing increased scrutiny regarding their app store practices and operating system integrations, from limiting the bundling of native services to easing restrictions on third-party payment systems. The need to comply proactively, rather than merely defending specific practices in a post-enforcement case, raises legal and administrative costs and may impede the swift launches of new features or services. As resources are directed towards compliance efforts, innovation may slow down, potentially undermining the global competitiveness of large U.S. tech companies in a crucial Asian market.

How China Benefits

By regulating the dominant smartphone platform operators more strictly, Japan’s bill inadvertently creates an opportunity for Chinese firms looking to enhance their mobile presence. Companies from China may find themselves less restricted if their market shares remain relatively smaller or if they design their services to circumvent the stricter provisions. As a result, American companies invest energy and capital in audits, government reporting, and potential reengineering of services. At the same time, Chinese device manufacturers and software platforms can concentrate more of their resources on capturing Japanese consumers. If U.S. firms reduce or reallocate investments due to these regulatory challenges, Chinese competitors could strengthen their position in Japan’s smartphone market, with broader benefits for China’s global tech landscape ecosystem.

Endnotes