A New Era for Japanese Data Protection: 2020 Amendments to the APPI
The recent amendments to Japan’s data protection law (the Act on the Protection of Personal Information, henceforth the ‘APPI‘) contain a number of new provisions certain to alter – and for many foreign businesses, transform – the ways in which companies conduct business in or with Japan. In addition to greatly expanding data subject rights, most notably, the amendments to the APPI (the ‘2020 Amendments‘):
(i) eliminate all former restrictions on the APPI’s extraterritorial application;
(ii) considerably heighten companies’ disclosure and due diligence obligations with respect to overseas data transfers;
(iii) introduce previously unregulated categories of personal information (each with corresponding obligations for companies), including ‘pseudonymously processed information’ and ‘personally referable information’; and
(iv) for the first time, mandate notifications for qualifying data breaches.
The 2020 Amendments will be enforced by the Personal Information Protection Commission of Japan (the “PPC”), pursuant to forthcoming PPC guidelines alongside the amended Enforcement Rules for the Act on the Protection of Personal Information (the ‘amended PPC Rules‘) and the amended Cabinet Order to Enforce the Act on the Protection of Personal Information (the ‘amended Cabinet Order‘) (both published on March 24, 2021).
As the 2020 Amendments are set to enter into force on April 1, 2022, Japanese and global companies that conduct business in or with Japan, have just less than one year to bring their operations into compliance. To facilitate such efforts, this blog post describes those provisions of the 2020 Amendments likely to have the greatest impact on businesses, as well as current events in Japan which will affect their implementation and should inform the manner by which companies address enforcement risks and compliance priorities.
1. LINE Data Transfers to China: A Wake-Up Call for Japan
To appreciate the effect that the 2020 Amendments will have on the Japanese data protection space, one must first consider the current political and societal contexts in Japan in which the 2020 Amendments will be introduced – and enforced – beginning with a recent incident of note involving LINE Corporation.
In March 2021, headlines across Japan shocked locals: Japan-based messaging app LINE, actively used and trusted by approximately 86 million Japanese citizens, had been transferring users’ personal information, including names, IDs and phone numbers, to a Chinese affiliate. It is neither unusual nor unlawful for Japanese tech companies to outsource certain of their operations, including personal information processing, overseas. But for Japanese nationals, the LINE matter is different for a number of important reasons, not least of which is the Japanese population’s awareness of the Chinese Government’s broad access rights to personal data managed by private-sector companies in China, pursuant to China’s National Intelligence Law.
LINE is not only the most utilized messaging application in Japan; it also occupies a special place in the country’s historical and cultural consciousness. When Japan was hit by the 2011 earthquake, use of voice networks failed and email exchanges were delayed, as citizens struggled to communicate with, and confirm the safety of, their loved ones. And so, LINE was born – a simple messaging and online calling tool to serve as a communications hotline in case of emergency. A decade on, LINE has become the major – and for many the only – means of communication in Japan – particularly in today’s socially-distanced world.
For the Japanese Government too, LINE serves a crucial role: national – and municipality – level government bodies use LINE for official communications, including of sensitive personal information such as for COVID-19 health data surveying. News of LINE’s transfer of user data to China, including potential access by the Chinese Government, therefore horrified private citizens and public officials both.
On March 31, 2021, the PPC launched an official investigation into LINE and its parent company, Z Holdings, over their management of personal information. Until such investigation is concluded, whether and to what extent LINE violated the APPI (and in particular, its provisions governing third party access and international transfers) will remain uncertain. Regardless, the impact of this matter on the Japanese data privacy space is already unfolding. In late March, a number of high-ranking Japanese politicians (including Mr. Akira Amari, Chairperson of the Rule-Making Strategy Representative Coalition of the Liberal Democratic Party of Japan) sent the PPC and other relevant Government ministries strongly-worded messages urging immediate action with respect to LINE, and more broadly, calling for a risk assessment to be conducted vis-à-vis all personal information transfers to China by companies in Japan.
Several days later, Japanese media reported that the PPC had requested members of both the KEIDANREN (the Japan Business Federation, comprised of 1,444 representative companies in Japan) and the Japan Association of New Economy (comprised of 534 member companies in Japan), to report their personal information transfer practices involving China, and to detail the privacy protection measures in place with respect to such transfers. For any APPI violations revealed, the PPC will issue a recommendation potentially followed with an injunctive order, the latter of which carries a criminal penalty (including possible imprisonment) if not implemented.
Importantly, recent political support for stronger data protection measures extends beyond transfers to China. For instance, Mr. Amari has also reportedly called on the PPC to broadly limit permissible overseas transfers of personal information to those countries with data protection standards equivalent to the APPI (a limitation which, if implemented, would greatly surpass restrictions on transfer under both the current APPI and the 2020 Amendments).
Although the PPC has yet to respond, it is evident that both political and popular sentiment in Japan strongly favor enhanced protections for Japanese persons’ personal information. The inevitable outcome of such sentiment, which may be further amplified depending on the PPC’s forthcoming conclusions regarding the LINE matter, will be the increasingly stringent enforcement of the APPI and its 2020 Amendments, and potentially, further amendments thereto. As recent events in Japan demonstrate, this transformation has already begun to take effect. Companies conducting business in or with Japan, whether Japanese or foreign, should therefore pay close attention to the Japanese data privacy space over the course of this year.
2. Broadened Extraterritorial Reach and International Transfer Restrictions
For ‘Personal Information Handling Business Operators’ (henceforth ‘Operators‘, a term used in joint reference to controllers and processors, upon which the APPI imposes the same obligations) arguably the greatest impact of the 2020 Amendments will derive from their drastic revisions to Article 75 (extraterritoriality) and Article 24 (international transfer).
To date, the APPI’s extraterritorial reach has been limited to a handful of its articles, primarily those governing purpose limitation and lawful acquisition of personal information (‘PI‘) by overseas Operators. From April 2022, however, Article 75 of the amended APPI will, without exception, fully bind all private-sector overseas entities, regardless of their size, which process the PI, pseudonymously processed PI or anonymously processed PI of individuals who are in Japan, in connection with supplying goods or services thereto.
With respect to international transfers, Article 24 of the current legislation prohibits the transfer of PI to a ‘third party’ outside of Japan absent the data subject’s prior consent, unless (i) the recipient country has been white-listed by the PPC or (ii) the recipient third party upholds data protection standards equivalent to the APPI (in practice, these would generally be imposed contractually). Otherwise, international transfers may also be conducted pursuant to legal obligation or necessity (for the protection of human life, public interest or governmental cooperation, provided that for each, the data subject’s consent would be difficult to obtain). The APPI’s international transfer mechanisms generally conform to those prescribed by other global data protection regimes, loosely resembling the EU GDPR’s adequacy decisions (with respect to (i) above), and standard contractual clauses or binding corporate rules (with respect to (ii) above, although there are no PPC-provided contractual clauses, and non-binding arrangements such as the APEC CPBR System are PPC-approved).
The 2020 Amendments and amended PPC Rules do not modify the above transfer mechanisms, but they do narrow their scope in two key aspects. First, pursuant to Article 24(2) of the 2020 Amendments, transfers conducted on the basis of data subject consent will henceforth require the transferring Operator (on top of preexisting notification obligations) to inform the data subject in advance as to the name of the recipient country, and the levels of PI protection provided by both that country (assessed using an “appropriate and reasonable method”) and the recipient third party. Absent such information, data subject consent will be rendered uninformed and the transfer, invalid.
Of greater impact on the transferring Operator, however, will be the second modification (pursuant to Article 24(3) of the 2020 Amendments): in the event that an international transfer is conducted in reliance on contractually or otherwise imposed APPI data protection standards (the primary transfer mechanism on which Operators in Japan rely), such contractual safeguards alone are to be rendered insufficient. Going forward, the transferring Operator must, in addition to imposing APPI-equivalent obligations upon a recipient third party, (i) take “necessary action to ensure continuous implementation” of such obligations by the recipient; and (ii) inform the data subject, upon request, regarding the actions the Operator has taken.
With respect to (i) above, the amended PPC Rules interpret “necessary action to ensure continuous implementation” as requiring the transferring Operator to: (1) periodically check the implementation status and content of the APPI-equivalent measures by the recipient third party, and assess (by an “appropriate and reasonable method”) the existence of any foreign laws which might impact such implementation; (2) take necessary and appropriate actions to remedy any obstacles that are found; and (3) suspend all PI transfer to the third-party recipient, should its continuous implementation of the APPI-equivalent measures become difficult.
In addition, following receipt of a data subject’s request for information (pursuant to (ii) above), the amended PPC Rules specify that the transferring Operator must, without undue delay, inform the requesting data subject of each of the following:
(2) details of the APPI-equivalent measures implemented by the recipient third party;
(3) the frequency and method by which the transferring Operator checked such implementation;
(4) the name of the recipient country;
(5) whether any foreign laws may affect the implementation of the APPI-equivalent measures, and a detailed overview of such laws;
(6) whether any obstacles to implementation exist, and a detailed overview of such obstacles; and
(7) the measures taken by the transferring Operator upon a finding of such obstacles.
Only if provision of the above items to the data subject is likely to ‘significantly hinder’ an Operator’s business operations, might that Operator refrain from such (complete or partial) disclosure.
In practice, Operators primarily rely upon contractual safeguards and consent (in that order) to transfer PI outside of Japan. Indeed, the PPC’s list of “adequacy decisions” on which transferring Operators may alternatively rely is significantly shorter than that of the European Commission: to date, only the UK and EEA members have been deemed adequate recipients of a PI transfer from Japan. Therefore, the onerous informational and due diligence obligations incumbent upon Operators from April 2022, which affect precisely these two transfer mechanisms, are certain to impact business operations in Japan. And, given the 2020 Amendments’ unbridled extraterritoriality, this burden will be equally felt overseas. Most importantly, in the wake of the March 2021 LINE matter, compliance with the current and amended APPI, and in particular its overseas transfers restrictions, will be at the top of the PPC’s enforcement priorities.
3. Mandatory Data Breach Notifications
In addition to expanding the types of security incidents subject to the amended APPI, more notably, data breach notifications will henceforth be mandatory (in contrast, data breach notifications are subject to ‘best efforts’ under current legislation). Going forward, Operators will be required – pursuant to Article 22-2 of the 2020 Amendments and the amended PPC Rules – to promptly notify both the PPC and data subjects of the occurrence and/or potential occurrence of any data leakage, loss, damage or other similar situation which poses a ‘high’ risk to the rights and interests of data subjects (henceforth, a ‘breach‘).
The types of breaches which meet this ‘high’ risk threshold, and thus trigger a notification obligation, are described by the amended PPC Rules as those which involve, or potentially involve, any of the following: (i) sensitive (‘special care-required’) PI; (ii) financial injury caused by unauthorized usage; (iii) a wrongful purpose(s) as the cause; or (iv) greater than 1,000 affected data subjects. However, a notification is not required in the event that the Operator implemented ‘necessary measures’ to safeguard the rights and interests of data subjects (such as sophisticated encryption).
The amended PPC Rules also stipulate the required content for such notifications, although Operators are granted thirty days to provide details unknown at the time of the initial notice:
(1) overview of the breach;
(2) the types of PI affected or possibly affected by the breach;
(3) the number of data subjects affected or possibly affected by the breach;
(4) causes of the breach;
(5) existence and nature of secondary damage or risks thereof;
(6) status and nature of communications to affected data subjects;
(7) whether and how the breach has been publicized;
(8) measures implemented to prevent a recurrence; and
(9) any additional matters which may serve as a useful reference.
For those Operators ‘entrusted‘ by another Operator with the processing of PI, the 2020 Amendments provide a second option: in lieu of notifying the PPC and data subjects, such “entrusted” Operators may instead alert the “entrusting” Operator as to the breach. In practice, this likely equates to the EU GDPR’s requirement for processors to notify controllers in the event of a breach (although under the 2020 Amendments, direct accountability to the PPC and data subjects is still the default, including for “entrusted” Operators).
In the event of a breach, amended Article 30(5) additionally confers upon data subjects the right to request deletion, suspension of use and suspension of transfer, of affected PI.
4. Expansion of ‘Personal Information’ Concepts and Categories
Another major modification to the APPI is the expanded scope of the types of PI covered. In addition to eliminating the APPI’s differential treatment of temporary PI (retained for up to six months), the 2020 Amendments introduce a new category of information, ‘pseudonymously processed information‘, thereby bringing the Japanese data protection regime one additional step closer to the EU GDPR framework.
As currently drafted, the APPI recognizes only two major types of information: PI and anonymously processed information. Notably, the method of rendering anonymously processed information under the APPI – in contrast to the EU GDPR– need not be technically irreversible (unless such data originates in the UK or EEA and the transfer is based on the European Commission’s adequacy decision on Japan, in which case special PPC-drafted Supplementary Rules do require irreversibility); instead, the APPI endeavors to preserve anonymity by requiring Operators to implement appropriate security measures to prevent reidentification.
Pseudonymously processed information is defined by the 2020 Amendments as information relating to an individual, which cannot identify such individual unless collated with additional information. The stated intention behind the drafters’ introduction of the pseudonymization process is to enable Operators to (i) utilize pseudonymously processed information for internal purposes including business analytics, the development of computational models, etc., and/or (ii) retain rather than delete, for potential future statistical analysis usage, pseudonymously processed information derived from PI which are no longer necessary for the original purpose(s) for which they were collected.
The 2020 Amendments and amended PPC Rules model the pseudonymization process on anonymization, requiring the removal of any (i) description, (ii) unique ‘personal identification code’ (as defined in the APPI), and (iii) information relating to the processing method performed to enable the removal of (i) and (ii) above. The immediate result is the creation, by separation, of two types of information: pseudonymously processed information and ‘removed’ PI, where the latter is the ‘key’ enabling reidentification.
The removed PI are treated as PI under the 2020 Amendments, and as such are subject to all of the same requirements and restrictions, although Operators in possession of both removed PI and pseudonymously processed information are additionally obligated to provide enhanced security in order to safeguard the integrity of the pseudonymously processed information (pursuant to the amended PPC Rules and amended Article 35-2(2)).
Notably, and in divergence from the EU GDPR approach to pseudonymously processed information, the 2020 Amendments’ rules governing treatment of such information vary according to the Operator involved. With respect to pseudonymously processed information handled by an Operator in simultaneous possession of the removed (and separately handled) PI, amended Article 35-2 stipulates the following specific requirements:
(i) a prohibition of the collation of such information with other data, such as the removed PI, in a manner which could identify data subjects;
(ii) strict application of the principles of purpose limitation and necessity thereto;
(iii) a prohibition on usage of any contact information contained therein to phone, mail, email or otherwise contact data subjects;
(iv) a prohibition of any transfer thereof to third parties (excluding, amongst others, “entrusted” Operators pursuant to Article 23(5)), unless such transfer is permitted by law or regulation (alternatively, the transfer of pseudonymously processed information by data subject consent is permissible if such information are instead handled as PI);
(v) in the event of their acquisition or the intended alteration of their processing purpose, limitation of the Operator’s disclosure obligation to that of notice by publication;
(vi) non-applicability of breach notification obligations pursuant to amended Article 22-2, provided that the removed PI are not also subject to the breach; and
(vii) the elimination of data subjects’ rights regarding their pseudonymously processed information, with the exception of their Article 35 right to receive a prompt and appropriate response to their complaints (subject to the Operator’s best efforts).
In addition to the above, the APPI’s ‘general’ requirements pursuant to Articles 19-22 will apply to pseudonymously processed information handled by an Operator which simultaneously (but separately) possesses the removed PI. Such Operator will be required to:
(i) maintain accuracy of the pseudonymously processed information (for the duration their utilization remains necessary, after which their immediate deletion – alongside the deletion of the removed PI – is required, subject to the Operator’s best efforts);
(ii) implement necessary and appropriate security measures to prevent leakage, loss or damage of the pseudonymously processed information; and
(iii) exercise necessary and appropriate supervision over employees and entrusted persons handling the pseudonymously processed information.
In contrast, with respect to pseudonymously processed information handed by an Operator which does not simultaneously possess the removed PI, amended Article 35-3 prohibits such Operator from acquiring the removed PI and/or collating the pseudonymously processed information with other information in order to identify data subjects, and limits the applicable provisions of the 2020 Amendments to the following:
(i) the implementation of necessary and appropriate security measures to prevent leakage (a simplified version of Article 20);
(ii) the exercise of necessary and appropriate supervision over employees and entrusted persons handling such information (pursuant to Articles 21 and 22);
(iii) a prohibition on usage of any contact information contained in the pseudonymously processed information to phone, mail, email or otherwise contact data subjects;
(iv) a prohibition of any transfer of such information to third parties (excluding, amongst others, “entrusted” Operators pursuant to Article 23(5)), unless such transfer is permitted by law or regulation (alternatively, the transfer of pseudonymously processed information by data subject consent is permissible if such information are instead handled as PI); and
(v) the elimination of data subjects’ rights regarding their pseudonymously processed information, with the exception of their Article 35 right to receive a prompt and appropriate response to their complaints (subject to the Operator’s best efforts).
In addition to pseudonymously processed information, the 2020 Amendments, pursuant to Article 26-2, introduce an additional, fourth category of information – namely, ‘personally referable information’. This fourth category includes cookies and purchase history (for example), which items may not independently be linkable to a specific individual (and thus would not constitute PI) but which could, if transferred to an Operator in possession of additional, related data, become PI. To account for such qualifying transfers, the 2020 Amendments introduce a consent requirement (such as an opt-in cookie banner).
In the case of overseas transfers, the transferring Operator must additionally inform the data subject as to the data protection system and safeguards of the recipient country and third party, as well as take ‘necessary action to ensure continuous implementation’ of APPI-equivalent safeguards by such recipient third party. Unlike for PI, the data subject does not have a right to request additional details regarding the ‘necessary action’ taken by the Operator with respect to an overseas transfer of personally referable information.
5. Preparing for the 2020 Amendments: Next Steps for Japanese and Foreign Operators
Companies conducting business in or with Japan should be mindful of the demanding nature of the 2020 Amendments to the APPI, and the stringency with which the PPC will seek to enforce them – particularly in view of the dismay caused by the LINE matter and the likelihood of efforts by the PPC to avoid similar incidents in the future.
Moreover, as the European Commission finalizes its first review of its 2019 adequacy decision on Japan, the PPC’s interpretative rules and enforcement trends may further intensify, with the aim of bringing Japanese data protection legislation closer to global standards, including the EU GDPR framework. Bearing this in mind, companies – including those not currently subject to the APPI, but which provide goods and/or services to individuals in Japan – would be wise to proactively conduct necessary modifications to their internal data protection policies and mechanisms, in order to ensure operational compliance with the amended APPI by April 2022.
For those Operators involved in international transfers of PI from Japan, absence of a PPC-issued “standard contractual clauses” template renders difficult, and from a compliance standpoint uncertain, any reliance on contractually-imposed APPI-equivalent standards pursuant to amended Article 24(3). However, one potential solution for Operators preparing to rely on this transfer mechanism for overseas PI transfers (excluding to the EEA or UK) may be the European Commission’s revised Standard Contractual Clauses (‘New SCCs‘), which are due to be published in early 2021. Subject to certain necessary modifications (of jurisdictional clauses and so forth), Operators may consider utilizing the New SCCs as a starting point, to bind recipient third parties to the stringent data protection standards and obligations of the 2020 Amendments.
Operators engaged in transferring PI should also be mindful of the 2020 Amendments’ onerous due diligence obligations with respect to overseas third parties. Prior to and during any cross-border engagements involving Japan-origin PI, Operators must actively ensure that their third-party recipients of such PI (including partners, vendors and subcontractors, as well as each of their respective partner, vendor and subcontractor recipients, and so forth) successfully implement, and continuously maintain, APPI-equivalent measures.
The 2020 Amendments’ enhanced disclosure obligations invite data subjects to hold Operators accountable with respect to the preventative and/or reactive measures Operators take – or fail to take – to protect their PI. Operators engaging foreign third parties should therefore consider reviewing and amplifying their due diligence of such entities, in addition to assessing the laws in each recipient country, in order to proactively identify and devise solutions to address potential obstacles to APPI adherence overseas.
The 2020 Amendments’ broadened extraterritorial application will also require non-Japanese companies to modify their internal data breach assessment and notification systems, to ensure that the PPC and data subjects in Japan are appropriately notified in the event of a qualifying breach; and to implement any necessary changes to their data subject communications platforms or data subject rights request forms, to enable data subjects in Japan to successfully exercise their amended APPI rights from April 1, 2022.
Once published, the PPC guidelines to the 2020 Amendments will further clarify (and potentially amplify) Operators’ compliance obligations with respect to each of the topics addressed in this blog post. The PPC’s findings in regard to LINE’s conduct may also have significant bearing on future APPI enforcement trends and risks. Therefore, in addition to implementing necessary measures to ensure operational compliance with the 2020 Amendments, companies processing covered PI and interested data privacy professionals should look out for these items over the next several months.
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