1. Background

The Japanese startup ecosystem remains relatively small and closely connected. As a result, maintaining a strong reputation within this community is essential for companies seeking to build and sustain successful business relationships.

In this context, it is essential to understand the Guidelines for Business Collaboration with Startups and Investment in Startups (the “JFTC/METI Business Collaboration Guidelines” or the “Guidelines”) published jointly by the Fair Trade Commission (“JFTC”) and the Ministry of Economy, Trade and Industry (“METI”) on March 31, 2022, with the latest revision issued on February 19, 2026. These Guidelines were introduced in response to concerns raised by startups regarding certain contractual practices, such as the broad assignment of patent rights to large companies in joint research arrangements and the appropriation of surrounding intellectual property.

The Guidelines aim to articulate both the appropriate structure and underlying philosophy of agreements between startups and their business partners or investors, with a view to fostering innovation through fair and effective collaboration. In particular, they address a range of commonly used agreements, including non-disclosure agreements (NDAs), proof of concept (PoC) agreements, joint research agreements, license agreements, and investment agreements. The Guidelines also identify examples of problematic contractual practices and analyze these issues from the perspective of competition law and policy.

A proper understanding of the Guidelines is essential for companies seeking to position themselves as trusted partners within the Japanese startup ecosystem. Given the importance of reputation in this market, conduct perceived as unfair may significantly hinder future collaboration opportunities. Moreover, under Japanese competition law, certain conduct that exploits a superior bargaining position may be deemed unlawful. Accordingly, companies should ensure that their contractual practices align with the principles set out in the Guidelines.

In particular, personnel involved in contract negotiations should be mindful that efforts to maximize their company’s commercial interests, if pursued without due consideration, may inadvertently harm the company’s reputation or result in non-compliance with applicable competition laws.

This column provides an overview of the Guidelines, excluding matters related to investment agreements, which will be addressed in a separate article.

2. Key Issues Identified in the JFTC/METI Business Collaboration Guidelines

[Table of Contents]
(1) Disclosure of Trade Secrets without an NDA
(2) One-Sided or Unbalanced NDAs
(3) Breach of NDAs and Misappropriation of Trade Secrets
(4) Issues Concerning Proof of Concept (PoC)
(5) Unilateral Vesting of Intellectual Property under Joint Research Agreements
(6) “Joint Development” in Name Only
(7) Restrictions on the Use of Joint Development Outputs
(8) Free Licensing of Intellectual Property
(9) Restrictions on Patent Applications
(10) Restrictions on Clients in Relation to Licensing
(11) Provision of Customer Information
(12) Reduction of Consideration and Delay in Payment
(13) Unilateral Imposition of Liability for Damages
(14) Restrictions on Transactions with Other Customers
(15) Most-Favored-Nation (MFN) Clauses

(1) Disclosure of Trade Secrets without an NDA

The Guidelines highlight cases in which a startup is requested to disclose trade secrets without first entering into a non-disclosure agreement (NDA).

According to the Guidelines, where a business partner in a superior bargaining position requests a startup to disclose trade secrets without compensation and without concluding an NDA—despite the absence of a legitimate justification (such as the necessity of such disclosure for the collaboration and appropriate compensation being reflected elsewhere)—and the startup feels compelled to comply due to concerns about future business opportunities, such conduct may constitute an abuse of a superior bargaining position under Article 2, Paragraph 9, Item 5 of the Antimonopoly Act.

The Guidelines provide the following illustrative examples of problematic practices:

– Company A sought to execute an NDA prior to disclosure. However, the business partner stated, “We will execute the NDA in due course, so please disclose the information first,” and the startup was effectively pressured into disclosing its source code and other proprietary materials without an NDA. Subsequently, the business relationships were terminated, and the business partner later launched a similar service using Company A’s source code.

– Company B explained that it could not disclose the entirety of its source code, which constituted core know-how for its web service. The business partner suggested that refusal might negatively affect future business opportunities, and Company B ultimately provided the full source code without an NDA.

(2) One-Sided or Unbalanced NDAs

The Guidelines also identify concerns regarding NDAs that are unilaterally imposed or otherwise unbalanced.

In particular, issues arise where a startup is asked to enter into an NDA under which only the startup bears confidentiality or disclosure obligations, or where the contractual term is unreasonably short. The Guidelines note that, where a business partner with superior bargaining power requires the startup to accept a one-sided NDA or an NDA with a short duration, including the case where it imposes its standard NDA without meaningful negotiation, and the startup feels compelled to accept due to concerns about future transactions, such conduct may also constitute an abuse of a superior bargaining position under Article 2, Paragraph 9, Item 5 of the Antimonopoly Act.

The Guidelines provide the following examples:

– In the course of a proposed joint business arrangement, Company C needed to exchange sensitive and business-critical confidential information with its partner. However, the NDA required only Company C to disclose its trade secrets, while the partner was not subject to equivalent disclosure obligations.

– Company D was required, under the NDA, to maintain the confidentiality of the business partner’s information, while the partner was not subject to any reciprocal confidentiality obligations with respect to Company D’s information.

– Company E was required to enter into an NDA with a short contractual term and no automatic renewal provision. Afterward, communications from the business partner ceased, and immediately after the expiration of the NDA, the partner announced the launch of a similar service.

(3) Breach of NDAs and Misappropriation of Trade Secrets

The Guidelines also address situations in which a business partner breaches a non-disclosure agreement (NDA), misappropriates a startup’s trade secrets, and subsequently develops and markets competing products or services.

The METI Business Collaboration Guidelines indicate that such conduct may not merely constitute a contractual breach, but may also raise concerns under Japanese competition law. In particular, where a business partner misuses confidential information obtained under an NDA to offer competing products or services to the startup’s customers, thereby disrupting the startup’s business relationships, such conduct may be regarded as “interference with a competitor’s transactions” under Item 14 of the General Designation, as designated by the Japan Fair Trade Commission pursuant to Article 2, Paragraph 9, Item 6 of the Antimonopoly Act.

The Guidelines provide the following illustrative examples:

– Company F entered into an NDA with a business partner. However, the partner did not disclose its own confidential information and instead requested and obtained only Company F’s confidential information. The partner subsequently breached the NDA, used the misappropriated information to develop similar services, and began competing directly with Company F.

– Company G disclosed its source code to a business partner after executing an NDA. Thereafter, communication from the partner ceased, and the partner later announced the launch of a similar service, effectively becoming a competitor to Company G.

(4) Issues Concerning Proof of Concept (PoC)

A proof of concept (PoC) is a process undertaken to verify whether the expected functionality, performance, and customer value contemplated in a proposed business collaboration can be achieved, and to determine whether to proceed to full-scale joint research and development. At this stage, a minimum viable product (MVP) or prototype is often developed.

The Guidelines note that, given the exploratory nature of a PoC, it is generally desirable to avoid protracted contract negotiations that may delay implementation. At the same time, however, they highlight risks arising from proceeding without a properly structured agreement. In practice, startups may be unable to recover their costs, may be repeatedly asked to conduct PoCs without leading to any substantive collaboration (a phenomenon often referred to as “PoC poverty”), or may face disputes regarding the ownership and use of know-how generated during the PoC phase. Accordingly, the Guidelines emphasize the importance of entering into a PoC agreement designed to address these issues in advance.

The Guidelines further identify cases in which startups are not adequately compensated for PoC work, or are requested to repeat or expand such work without additional compensation.

In particular, where a business partner with superior bargaining power makes the following requests, and the startup feels compelled to accept due to concerns about future business opportunities (such as the prospect of entering into a joint research agreement), such conduct may constitute an abuse of a superior bargaining position under Article 2, Paragraph 9, Item 5 of the Antimonopoly Act:
(i) Requiring the startup to conduct a PoC free of charge without a legitimate justification (for example, where the PoC is essential to the collaboration and corresponding consideration is provided elsewhere);
(ii) Unilaterally setting compensation for the PoC at an unreasonably low level without sufficient consultation with the startup, including setting compensation without sufficient discussion;
(iii) Reducing agreed compensation without legitimate grounds (for example, outside a reasonable scope or timeframe, and without justification attributable to the startup); or
(iv) Requesting the startup to redo the PoC without legitimate reasons (such as where the original results fail to meet the agreed specifications).

The Guidelines provide the following illustrative examples:

– Company H was requested to conduct a PoC involving additional work beyond the initial estimate, based on a verbal assurance that a formal contract would follow. However, the additional work was not compensated, and no subsequent contract was concluded.

– Company I entered into a PoC agreement to develop a trial AI system. The business partner later required additional “verification” on its production system and effectively compelled Company I to perform development work for the production system without compensation.

– Company J completed a PoC to develop AI system in accordance with the business partner’s requests. After completion, the partner demanded further work without compensation. Given the potential for future collaboration, Company J felt compelled to comply.

– Company K was repeatedly required to revise its PoC deliverables without clear specifications. Despite incurring substantial costs, it ultimately received only one-fifth of those costs as compensation.

– After completing the agreed PoC work, Company L was instructed to perform additional tasks based on new specifications and was effectively required to continue work without a clear endpoint.

– Company M faced continuous demands for work beyond the agreed scope of the PoC. It was required to continue working until the business partner was satisfied, without receiving compensation commensurate with the additional work.

To address these concerns, the Guideline emphasizes the importance of clearly defining: (i) the objectives of the PoC and the criteria for determining its completion; (ii) the consideration for the PoC; and (iii) the conditions under which the parties will proceed to the joint research and development stage.

(5) Unilateral Vesting of Intellectual Property under Joint Research Agreements

The Guidelines identify situations in which startups are requested by business partners to enter into joint research agreements that provide for the exclusive vesting of all intellectual property (IP) rights in the business partner.

The Guidelines caution that, where a business partner with superior bargaining power requires a startup to assign IP generated through joint research without compensation and without a legitimate justification—such as where compensation commensurate with the startup’s contribution is appropriately reflected elsewhere—and the startup feels compelled to accept due to concerns about the continuation of the business relationship (e.g., termination of the joint research), such conduct may constitute an abuse of a superior bargaining position under Article 2, Paragraph 9, Item 5 of the Antimonopoly Act.

The Guidelines provide the following illustrative examples:

– Company N, in proceeding to PoC and joint research stage, entered into a contract prepared and effectively imposed by the business partner. Under this contract, all rights in the outcomes of the PoC and joint research were unilaterally vested in the business partner.

– Company O was required, in the course of joint research, to transfer intellectual property rights to the business partner without compensation.

– Company P faced significant pressure due to the importance of maintaining a transactional relationship with a large enterprise, which was critical to its credibility. As a result, the business partner held substantial bargaining power in negotiating the joint research agreement, and Company P was effectively compelled to agree to a unilateral transfer of IP rights.

The Guidelines also caution against arrangements in which IP generated through joint development is jointly owned without sufficient consideration. In practice, joint ownership may impede a startup’s business expansion, as the consent of the co-owner is typically required for the exploitation of the IP in other fields or applications.

Conversely, the Guidelines note that business partners do not necessarily need to own the IP outright, provided that they can secure sufficient rights to use it. Accordingly, a more balanced structure may involve vesting IP rights in the startup while granting the business partner an exclusive license, subject to appropriate limitations in scope (e.g., field of use) and duration.

To address concerns of business partners, the Guidelines further suggest complementary mechanisms, such as: (i) non-compete obligations restricting the startup from engaging in competing developments with third parties for a defined period; and (ii) granting the business partner an option to negotiate for acquiring the IP upon the occurrence of deterioration in the startup’s financial condition.

(6) “Joint Development” in Name Only

The Guidelines also address situations where so-called “joint development” arrangements do not reflect the actual contributions of the parties.

In particular, the Guidelines identify cases in which a startup is requested to enter into an agreement under which intellectual property (IP) rights arising from joint research are assigned either entirely to the business partner or jointly to both parties, even though the startup has conducted the substantial majority of the research and development.

The Guidelines state that, where a business partner with superior bargaining power requires a startup to transfer all or part of the output of joint research without compensation and without a legitimate justification—such as where ownership by the business partner is appropriately offset by other consideration paid to the startup—and the startup feels compelled to accept due to concerns about future transactions (e.g., termination of the joint research relationship), such conduct may constitute an abuse of a superior bargaining position under Article 2, Paragraph 9, Item 5 of the Antimonopoly Act.

The Guidelines provide the following illustrative examples:

– Company Q conducted all development of a core program in the joint research project, yet was forced to accept a contract under which all resulting patents were assigned to the business partner.

– Company R handled all program development internally but was nevertheless required to agree that all patents arising from the joint research would belong exclusively to the business partner.

– In a purported joint research project, Company S provided nearly all of the technology, know-how, and ideas, while the business partner made minimal contribution. Despite this, Company S was required to jointly file patents with the partner.

– Company T carried out all research and development, while the business partner’s role was limited to trial operation of the developed technology. Nevertheless, Company T was required to transfer half of the IP rights to the business partner under a contract favorable to the partner.

The Guidelines further note that business partners often justify such arrangements by pointing to their financial contributions to the project. However, the Guidelines emphasize that startups also make substantial contributions through their personnel, expertise, and know-how, and that financial contribution alone does not automatically justify allocating IP ownership to the funding party. Where IP rights are to be transferred or shared, the consideration provided to the startup should be commensurate with its actual contribution, including the role of its personnel and inventors.

(7) Restrictions on the Use of Joint Development Outputs

The Guidelines address situations in which business partners impose restrictions on the customers to whom a startup may market products or services developed through joint research, or derived from the know-how and experience gained in such collaboration.

The Guidelines acknowledge that, under the Antimonopoly Act, it is in principle permissible for a business partner to impose certain limitations on the sales destinations of products or services resulting from joint research, for a reasonable period, where such restrictions are necessary to protect confidential information or know-how generated through the collaboration.

However, the Guidelines caution that where a business partner being a leading player in the relevant market imposes broad or indefinite restrictions on the startup’s ability to sell products or services (including those independently developed but leveraging experience from the joint research), and there is a possibility that such restrictions have the effect foreclosing market access, they may raise competition law concerns. In particular, such conduct may be characterized as an exclusive dealing arrangement (Item 11) or a tying arrangement (Item 12) under the General Designation, as designated by the Japan Fair Trade Commission pursuant to Article 2, Paragraph 9 of the Antimonopoly Act.

The Guidelines provide the following illustrative examples:

– Company U developed a service independently and supplied it to a business partner. The partner instructed Company U not to sell the service to its competitors and indicated that the transaction would be terminated if Company U failed to comply. Company U felt compelled to accept this restriction.

– Company V independently developed an AI system and further improved it through experience gained in collaboration with a business partner. Although the AI did not incorporate the partner’s confidential information, Company V was nevertheless restricted from providing the AI to other companies.

With respect to intellectual property arrangements, the Guidelines reiterate that a balanced structure may involve vesting IP rights in the startup while granting the business partner an exclusive license, subject to appropriate limitations in scope (e.g., field of use) and duration.

In addition, the Guidelines provide specific observations regarding AI-related business models. In cases where a startup adopts a model of providing services based on customized models developed using data from multiple business partners, granting exclusive licenses is generally considered impractical and inefficient for both parties, except in exceptional circumstances (e.g., where a licensee monopolizes a particular business area and pays a correspondingly high fee to the startup). The Guidelines note that startups in this field typically engage with multiple business partners on similar terms. If exclusive licenses were granted, separate models or work products would need to be developed for each partner, resulting in increased costs and higher usage fees. By contrast, a non-exclusive licensing structure allows broader utilization of the service and enables business partners to access it at lower cost. To compensate the contribution, the Guidelines suggest that startups may offer preferential pricing or other favorable terms to business partners that have made contributions to the joint research and development.

(8) Free Licensing of Intellectual Property

The Guidelines also address situations in which startups are requested by business partners to grant licenses to their intellectual property (IP) free of charge.

The Guidelines state that, where a business partner with superior bargaining power requires a startup to grant an IP license without compensation—despite the absence of a legitimate justification (for example, where the license constitutes an essential element of the business collaboration and appropriate consideration is provided elsewhere)—and the startup feels compelled to accept due to concerns about future business relationships (such as the potential termination of the license or other transactions), such conduct may constitute an abuse of a superior bargaining position under Article 2, Paragraph 9, Item 5 of the Antimonopoly Act.

The Guidelines provide the following illustrative example:

– Company W agreed to license its technology to a business partner to enable the partner to commercialize products. However, the business partner required that the license be granted free of charge, and Company W felt compelled to accept this condition.

(9) Restrictions on Patent Applications

The Guidelines also address situations in which startups are requested by business partners to accept restrictions on filing patent applications for technologies developed by the startups and licensed to the business partner.

According to the Guidelines, where a business partner with superior bargaining power unilaterally imposes restrictions on a startup’s ability to obtain patents—such as by requiring the startup to accept a template agreement that broadly prohibits patent filings, without sufficient consultation—and the startup feels compelled to accept due to concerns about future business opportunities (e.g., the continuation of the collaboration), such conduct may constitute an abuse of a superior bargaining position under Article 2, Paragraph 9, Item 5 of the Antimonopoly Act.

The Guidelines provide the following illustrative examples:

– Company X was requested by a business partner to enter into a contract containing a clause prohibiting Company X from obtaining patents on know-how and technologies it independently developed in the course of software development commissioned by the partner. Company X was effectively compelled to accept this restriction.

– Company Y was engaged in joint research with a business partner. However, with respect to a new technology developed independently by Company Y outside the scope of the joint research, the business partner unilaterally required the inclusion of a contractual clause prohibiting Company Y from filing a sole patent application, instead insisting that ownership (including the possibility of joint applications) be subject to further discussion.

(10) Restrictions on Clients in Relation to Licensing

The Guidelines also address situations in which a startup is restricted by its business partner from supplying products or services to other customers.

The Guidelines recognize that, where a business partner must protect the confidentiality of its know-how incorporated into a startup’s products or services, restricting the startup to supply such products or services exclusively to that business partner may, in principle, not raise issues under the Antimonopoly Act.

However, the Guidelines caution that concerns may arise where the business partner holds a significant position in the relevant market and imposes restrictions that prohibit the startup from dealing with other customers or otherwise unduly limit the startup’s independent sales activities beyond a reasonable scope. If such restrictions create a risk of market foreclosure, they may constitute problematic conduct, such as exclusive dealing (General Designation, Item 11) or tie-in sales (General Designation, Item 12), as designated by the Japan Fair Trade Commission pursuant to Article 2, Paragraph 9 of the Antimonopoly Act.

The Guidelines provide the following illustrative examples:

– Company Z was dependent on its business partner for both funding and data in developing its service. The partner required Company Z to enter into an exclusive arrangement prohibiting it from providing services—even those not incorporating the partner’s data—to any third party.

– Company A was required to enter into an exclusive sales agreement that prohibited it from engaging in independent sales activities, with penalties imposed for any breach.

The Guidelines recommend that any sales restrictions imposed on startup and the business partner be carefully calibrated, taking into account differences in geographic area, industry sectors, sales channels, and business models, so that neither party’s business development is unduly constrained.

In addition, the Guidelines note that even where exclusivity is agreed at the outset, business conditions may change. Accordingly, it is advisable to include mechanisms to revisit such arrangements—for example, provisions converting an exclusive license into a non-exclusive one where (i) the licensed technology is not utilized for a certain period without legitimate reason, or (ii) the business partner determines not to proceed with commercialization due to strategic changes or (iii) failure to achieve agreed sales targets.

(11) Provision of Customer Information

The Guidelines also address situations in which a startup is requested by a business partner to provide customer information. Such information is often out of the scope of a non-disclosure agreement, but may nonetheless constitute a trade secret.

The Guidelines state that where a business partner with superior bargaining power requests that a startup provide customer information free of charge, despite the absence of a legitimate justification—such as where the information is essential for the collaboration and appropriate consideration is provided elsewhere—and the startup feels compelled to comply due to concerns about adverse effects on the business relationship (e.g., termination of the collaboration), such conduct may constitute an abuse of a superior bargaining position under Article 2, Paragraph 9, Item 5 of the Antimonopoly Act.

The Guidelines provide the following illustrative examples:

– Company B was requested by its business partner to provide customer information and felt compelled to comply. The business partner subsequently used that information to market competing products to Company B’s customers.

– Company C was required, in the course of a collaboration, to disclose information regarding its sales destinations, which constituted a trade secret. However, the business partner did not provide any comparable information in return.

(12) Reduction of Consideration and Delay in Payment

The Guidelines also address situations in which a startup’s compensation is reduced or payment is delayed by a business partner.

The Guidelines state that where a business partner with superior bargaining power:
(i) unilaterally reduces the contractually agreed consideration without a legitimate reason (e.g., reduction is made within a reasonable scope based on circumstances attributable to the startup and within a reasonable period after the provision of goods or services); or
(ii) fails to make payment by the agreed due date without a legitimate reason (e.g., delayed payment is agreed in advance with the startup and appropriate measures are taken to compensate for any disadvantage ordinarily arising from such delay),
and the startup is compelled to accept such treatment due to concerns about adverse effects on the business relationship (e.g., termination of the collaboration), such conduct may constitute an abuse of a superior bargaining position under Article 2, Paragraph 9, Item 5 of the Antimonopoly Act.

The Guidelines provide the following illustrative examples:

– Company D, despite having agreed to receive compensation over several years under a joint research agreement, had its compensation unilaterally reduced without a justifiable reason during the contract term.

– Company E was requested to enter into a contract that did not specify the amount of compensation. Although a separate proposal indicating a specific amount had been presented, after Company E completed the work, the business partner claimed the work was no longer necessary and unilaterally reduced the amount, citing the absence of a specified contract price.

– Company F was, near completion of the entrusted work, suddenly required by the business partner to guarantee performance, quality, and accuracy of the product. Despite having explained prior to contracting that such guarantees would be difficult, the business partner reduced the compensation on the grounds that these guarantees could not be provided.

– Company G was entitled under the contract to receive advance payments for certain products supplied to its business partner; however, such advance payments were delayed without justification.

(13) Unilateral Imposition of Liability for Damages

The Guidelines also address situations in which a startup is required by a business partner to assume unilateral liability for damages arising from products or services developed through the collaboration.

The Guidelines state that, where a business partner with superior bargaining power requires a startup to bear all liability for damages—without a legitimate justification (for example, where it is a kind of liability which the startup should bear and the associated risks are not appropriately compensated)—and the startup feels compelled to accept due to concerns about future business relationships (such as termination of the collaboration), such conduct may constitute an abuse of a superior bargaining position under Article 2, Paragraph 9, Item 5 of the Antimonopoly Act.

The Guidelines provide the following illustrative examples:
– Company H agreed with its business partner that, in the event of defects in products incorporating a system developed by Company H, all product liability would be borne by Company H, regardless of whether the defect was attributable to the system, and the business partner assumed no responsibility.
– Company I sought to limit its liability to the value of its transactions with the business partner. However, due to its weak bargaining position, it was forcced to accept a contract under which it effectively bore unlimited risk.
– Company J was held liable for damages amounting to several to several dozen times the transaction value under its agreement with a business partner.

The Guidelines further highlight the risks associated with broad intellectual property indemnities (including so-called “patent guarantees”) imposed on startups. They suggest that, rather than providing full and unconditional guarantees, startups should consider limiting such obligations—for example, by qualifying representations “to the best of their knowledge” or only representing that they have not received any notice of infringement.

From the perspective of business partners, the Guidelines emphasize that startups may lack the resources or capacity to conduct comprehensive patent clearance investigations. Accordingly, business partners should not rely solely on contractual indemnities but should also take independent measures to mitigate risk, such as conducting their own patent searches and implementing appropriate infringement-avoidance strategies.

(14) Restrictions on Transactions with Other Customers

The Guidelines also address situations in which business partners impose restrictions on a startup’s ability to transact (including sales and procurement) with other companies.

The Guidelines acknowledge that, where necessary to protect confidential information or know-how incorporated into a startup’s products or services, it may be permissible under the Antimonopoly Act to limit sales of such products or services to the business partner for a reasonable scope and duration.

However, the Guidelines caution that, where a business partner with a strong position in the relevant market imposes restrictions that go beyond what is reasonably necessary (for example, broadly prohibiting transactions with other customers or suppliers), and such restrictions may lead to a foreclosure of market opportunities, the arrangement may may constitute an exclusive dealing arrangement (Item 11) or a tying arrangement (Item 12) under the General Designation, as designated by the Japan Fair Trade Commission pursuant to Article 2, Paragraph 9, Item 6 of the Antimonopoly Act.

The Guidelines provide the following illustrative example:

– Company K, in entering into a business alliance agreement, was requested by its business partner not to handle products of other companies. Although Company K initially resisted, it had no alternative partners available and ultimately felt compelled to accept the restriction.

The Guidelines emphasize the importance of carefully assessing whether contractual restrictions appropriately balance the interests of both parties. In some cases, limited restrictions—such as prohibiting transactions with direct competitors of the business partner—might be considered reasonable to protect the partner’s competitive position, particularly where intellectual property generated through joint research and development is vested in the startup.

(15) Most-Favored-Nation (MFN) Clauses

The Guidelines also address the use of most-favored-nation (MFN) clauses, under which a startup agrees to provide a business partner with terms that are as favorable as, or more favorable than, those offered to other counterparties.

The Guidelines acknowledge that MFN clauses are not inherently problematic under the Antimonopoly Act. However, concerns may arise where a business partner having a leading position in the relevant market imposes MFN terms that have the effect of restricting competition. For example, such clauses may discourage competitors of the business partner from transacting with the startup on more favorable terms, thereby reducing their incentives to engage with the startup and potentially leading to market foreclosure. In such circumstances, MFN clauses may be scrutinized as a tying arrangement (Item 12) under the General Designation, as designated by the Japan Fair Trade Commission pursuant to Article 2, Paragraph 9, Item 6 of the Antimonopoly Act.

The Guidelines provide the following illustrative examples:

– Company L was required, as a condition of its transaction with a business partner, to ensure that the price of its products offered to that partner was the lowest among all customers.

– Company M provided services to multiple business partners, but one partner required that its pricing be set lower than that offered to any other business partners.

– Company N, which operates a media platform, was required by a business partner to ensure preferential treatment, including the most prominent placement and terms equal to or more favorable than those provided to other comparable businesses.

The Guidelines further note that MFN clauses operate such that, if more favorable terms are subsequently offered to another counterparty, those terms automatically extend to the MFN beneficiary. Accordingly, startups should carefully consider the potential impact of such clauses on their future business flexibility. In particular, it is important to define the scope and duration of MFN obligations clearly and to ensure that the overall consideration is commercially reasonable.

The Guidelines argues that in certain contexts, MFN clauses may be justified. For example, in AI-related business models where a startup develops customized models using data and know-how provided by a specific business partner and offers services based on those models to multiple customers, it may be reasonable for the contributing partner to receive preferential terms (including MFN protection) for a reasonable period as consideration for its contribution.

Disclaimer: This column intends to provide a high-level summary of the subject matter, and it does not aim to provide exhaustive information. Also, this column is for informational purposes only and does not constitute legal advice. For specific issues, we recommend consulting an expert. If you have any query, please contact us via inquiry form in this homepage.