This column explains key legal rules and business practices in Japan that foreign investors should understand when investing in Japanese start-ups.

Chapter 5: JFTC/METI Business Collaboration Guidelines

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 for foreign corporation seeking to invest in or conclude business and capital alliance with Japanese startup 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 section provides an overview of the Guidelines concerning the investment agreement matters. Other matters are discussed in our separate column (Business Alliances with Japanese Startups – Overview of the JFTC/METI Business Collaboration Guidelines).

[Table of Contents]
(1) Disclosure of Trade Secrets without an NDA
(2) Breach of NDAs
(3) Unpaid Work
(4) Startup Bearing Costs of Work Outsourced by Investors to Third Parties
(5) Purchase of Unnecessary Goods and Services
(6) Disadvantageous Requests Backed by Put Options
(7) Put Options Allowing Repurchase at an Excessive Price
(8) Exercise of a Put Option Without Satisfying the Exercise Conditions
(9) Put Options Against Individuals
(10) Restrictions on Research and Development Activities
(11) Restrictions on Clients and Suppliers
(12) Most-Favored-Nation Terms

(1) Disclosure of Trade Secrets without an NDA

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

According to the Guidelines, where an investor with superior bargaining power requests a startup to disclose trade secrets without compensation and without executing an NDA, and no legitimate justification exists (for example, where such disclosure essential for the investment agreement and appropriate consideration is provided elsewhere) and if the startup complies with such a request because it feels compelled to do so due to concerns about its future business relationship with the investor (e.g., fear of losing future funding opportunities), the 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 O was strongly pressured by an investor to explain its business model, including trade secrets, despite the investor’s refusal to enter into an NDA, and ultimately provided such explanation.
– Company P was compelled to disclose, free of charge, all know-how relating to its manufacturing process—beyond the scope of the investment agreement—so that the investor could manufacture the products in-house.

Given this, it is important to execute an NDA before receiving any trade secrets. An NDA is also beneficial to the investor, as it helps avoid misunderstandings or differences in expectations between the parties regarding how the information will be handled.

(2) Breach of NDAs

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

The Guidelines indicate that where an investor discloses a startup’s trade secrets to another investee and enables that investee 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 example:
– An investor required, as a condition to its investment, that Company Q disclose confidential information. After entering into an NDA, Company Q provided such information. However, the investor breached the NDA and disclosed the information to another of its investees. As a result, that investee developed and marketed services competing with those of Company Q.

It is important to note that a breach of an NDA may constitute not only a contractual breach, but also a violation of competition law. In particular, if the recipient uses disclosed trade secrets to obtain an unfair advantage or to cause harm to the disclosing party — including through the development or launch of competing products or services — such conduct may constitute a violation of the Unfair Competition Prevention Act and may be subject to injunction order, damage, or depending on the case, criminal penalties.

(3) Unpaid Work

The Guidelines also address situations in which startups are requested by investors to perform work outside the scope of the contract without compensation.

According to the Guidelines, where an investor with superior bargaining power requests a startup to perform work not stipulated in the contract free of charge, and no legitimate justification exists (for example, where such work is essential to the investment agreement and appropriate compensation is provided elsewhere), and if the startup complies with such a request because it feels compelled to do so due to concerns about its future relationship with the investor (e.g., the possibility of not receiving additional investment), the 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:
– When an investor launched a new business, Company R was requested to perform work, free of charge, to support that business. The requested work fell outside the scope of the existing contract. Due to its ongoing relationship with the investor, Company R was in a weak bargaining position and found it difficult to refuse the request. As a result, despite receiving no benefit, Company R performed the work without compensation.

In light of the Guidelines, where an investor requests a startup to perform work not stipulated in the contract free of charge, it is important to consider whether a legitimate justification exists — for example, where such work is essential to the investment agreement and appropriate compensation is provided elsewhere — and to properly document such justification for future reference.

(4) Startup Bearing Costs of Work Outsourced by Investors to Third Parties

The Guidelines also address situations in which a startup is requested by an investor to bear all of the costs of work that the investor has outsourced to third parties.

According to the Guidelines, where an investor with superior bargaining power unilaterally requires a startup to bear all costs associated with work commissioned by the investor to a third party without adequate consultation, and if the startup complies with such a request because it feels compelled to do so due to concerns about future transactions such as the possibility of not receiving further investment, the 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 S was required to bear all costs of work outsourced by the investor to external service providers and had no practical ability to refuse. Those costs were originally expected to be borne by the investor.

The Guidelines further note that this issue frequently arises in the context of due diligence costs incurred in connection with a proposed investment. Usually such costs are borne by the investor, but in some cases such as where the nature of startup’s business is unique, cost may be borne by startup. However, the Guideline argues that if such costs is imposed to startup unilaterally, without prior coordination, and primarily for the investor’s benefit, it is problematic from the perspective of promoting open innovation.

From a comparative perspective, it is understood that, in the U.S. venture capital market, it is relatively common for startups to bear certain third-party costs (e.g., fees of external experts) in connection with an investment. However, such practices are not generally customary in Japan, and investors should be mindful that imposing these costs on startups may give rise to legal concerns under the framework described above.

(5) Purchase of Unnecessary Goods and Services

The Guidelines also address situations in which startups are requested by investors to purchase unnecessary goods or services from businesses designated by the investor, including the investor’s other investees.

According to the Guidelines, where an investor with superior bargaining power requests that a startup purchase goods or services outside the scope of the relevant transaction, and if the startup complies with such a request despite the goods or services being unnecessary for its operations or contrary to its intentions, because it feels compelled to do so due to concerns about its future relationship with the investor (e.g., the possibility of losing future investment opportunities), the 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:
– Although Company T had already secured the necessary back-office personnel and had no need for additional support, it was instructed by an investor to engage service providers affiliated with the investor and was unilaterally required to bear the associated personnel costs.
– Company U was requested by an investor to place orders with another company in which the investor had invested, despite the services being unnecessary for Company U’s business. As a result, Company U incurred losses equivalent to the cost of those unnecessary services.

It is important to note that startups receiving investment from investors are often in a weaker bargaining position than the investors. As a result, startups may find it difficult to refuse an investor’s recommendation in light of the ongoing relationship, even where the investor does not intend to impose the recommendation and merely recommends the relevant product or service in good faith.

(6) Disadvantageous Requests Backed by Put Options

The Guidelines also address situations in which a startup is requested by an investor to accept disadvantageous terms—such as the gratuitous transfer of intellectual property rights—and the investor suggest exercise of its put option if such request is refused.

According to the Guidelines, a put option held by an investor in respect of startup shares may strengthen the investor’s bargaining position, as it enables the investor to suggest the possibility of exercising the option and thereby exerts pressure in negotiations.

Against this background, where an investor with superior bargaining power makes disadvantageous requests such gratuitous transfer of intellectual property rights without legitimate justification—for example, where intellectual property right is contemplated to be vested in the investor under the investment agreement and appropriate consideration is provided elsewhere—and the startup complies because it feels compelled to do so due to concerns about adverse consequences, such as the potential exercise of the put option, 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 V was performing well and had achieved the business targets agreed with its investors. Nevertheless, the investors requested that Company V transfer its intellectual property rights without compensation and indicated that they might exercise their put option if the request was not accepted. As a result, Company V transferred its intellectual property rights.

It is important for investors to recognize that put options customarily used in Japanese startup investment practice constitute very strong rights and should not be abused. Any request expressly or implicitly backed by a put option may place significant pressure on the startup and could give rise to concerns under competition law.

(7) Put Options Allowing Repurchase at an Excessive Price

The Guidelines also address situations in which a startup facing financial difficulty is requested by an investor to grant a put option that allows the investor to require the repurchase of its shares at a price significantly exceeding the original investment amount.

According to the Guidelines, where an investor with superior bargaining power unilaterally requires a startup to grant such a put option without adequate consultation, and if the startup agrees to such terms because it feels compelled to do so due to concerns about its future relationship with the investor, such as the possibility of not receiving further funding, the 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 X was required by its investors to accept a provision under which it would be obligated to repurchase its shares at a price significantly higher than the original investment amount several years later.

Imposing a put option with a high buyback price may be beneficial from the investor’s perspective as a means of protecting its investment. However, put options have recently come under increased scrutiny due to the significant burden they may impose on startups and founders. It is therefore important to note that the imposition of such put options could also give rise to concerns under competition law.

(8) Exercise of a Put Option Without Satisfying the Exercise Conditions

The Guidelines also address situations in which an investor seeks to exercise a put option even though the contractual conditions for its exercise have not been satisfied.

According to the Guidelines, where an investor with superior bargaining power requests the repurchase of part of shares without a legitimate justification—for example, where the agreed exercise conditions have been met—and the startup complies because it feels compelled to do so due to concerns about its future relationship with the investor, such as the risk of termination of the investment agreement or other adverse consequences, 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 Y revised its equipment procurement method in order to offer its products at a lower price. This change did not constitute a material deviation from the agreed business plan and did not satisfy the conditions for exercising the put option. Nevertheless, the investors unilaterally exercised the put option with respect to part of Company Y’s shares.

It is important to note that such exercise may be invalid not only from a contractual law perspective, but may also give rise to concerns under competition law.

(9) Put Options Against Individuals

The Guidelines also address situations in which a startup is requested by investors to grant a put option against individuals, such as management shareholders.

According to the Guidelines, put options exercisable against individuals such as management shareholders may undermine incentives to establish and grow startups with external investment. From the perspective of promoting entrepreneurship, open innovation, and employment, the Guidelines indicate that, even where a put option is included in an investment agreement, it is desirable from a competition policy standpoint to exclude individual from its scope.

The Guidelines provide the following illustrative examples:
– Company Z was required by its investors to include in the investment agreement a put option exercisable against its founders, and this provision was imposed unilaterally.
– Company AA was unilaterally required to agree that, if it were to commence a business without the investors’ consent, the investors could exercise a put option against its founders.

It is important to note that the Guidelines do not state that put options against individuals, such as management shareholders, give rise to concerns under competition law, unlike other issues addressed in the Guidelines. However, it should also be noted that put options against individuals have recently come under increased scrutiny in light of the significant burden they may impose on management shareholders.

(10) Restrictions on Research and Development Activities

The Guidelines also address situations in which a startup is restricted by an investor from conducting research and development activities for new products or services.

According to the Guidelines, conduct by an investor that restricts a startup’s independent research and development activities—for example, by prohibiting the startup from developing technologies that may compete with those of the investor or its other investees—may highly likely to be regarded as a “trading on restrictive terms” under Item 12 of the General Designation.

The Guidelines provide the following illustrative example:
– Company BB sought to develop AI technology utilizing its proprietary technology. However, its investors prohibited the development on the grounds that it could potentially compete with technologies of other investees and indicated that they would terminate the investment agreement if the prohibition was not observed. As a result, Company BB was compelled to abandon the development.

(11) Restrictions on Clients and Suppliers

The Guidelines also address situations in which a startup is restricted by its investors from engaging in transactions or collaborations with other businesses, or from receiving investment from other investors.

According to the Guidelines, restrictions on a startup’s counterparties may, in certain circumstances, be justified. For example, where it is necessary to protect the confidentiality of an investor’s know-how incorporated into the startup’s products or services, limiting the startup’s dealings with third parties may not, in principle, raise concerns under the Antimonopoly Act.

However, the Guidelines caution that where an investor—particularly one with a strong position in the market—imposes restrictions that exceed a reasonable scope and if such conduct gives rise to market foreclosure effects, it may be regarded as an exclusive dealing arrangement (Item 11 of the General Designation) or trading on restrictive terms (Item 12 of the General Designation).

The Guidelines provide the following illustrative examples:
– Company CC was restricted by an investor, which also operated businesses other than investment, from engaging in transactions with other companies, including those that did not compete with the investor.
– Company D entered into an exclusive arrangement with an investor based on the promise of a future joint business. However, the joint business did not materialize, and the investor did not respond to requests to revise the exclusivity, leaving Company D unable to collaborate with other businesses.
– Under an investment agreement, Company EE was subject to broad restrictions, including prohibitions on raising funds from, transacting with, or collaborating with other companies without prior investor consent.
– Company FF agreed to a provision under which, if it received investment from new investors, its terms with existing investors would be revised in a significantly disadvantageous manner, effectively preventing it from raising additional funding.

The Guidelines further note that, while startups typically require flexibility to pursue diverse growth opportunities, certain restrictions may be reasonable in limited circumstances. For example, where a joint venture is contemplated following an investment and the intellectual property arising from that venture is owned by the startup, it may be justified, in some cases, to restrict the startup’s transactions with the investor’s competitors in order to preserve the investor’s competitive position.

In light of the Guidelines, where an investor imposes restrictions on a startup’s transactions with other customers, it is advisable to specifically document the reasons for such restrictions in the contract — such as the protection of confidential information or know-how incorporated into the startup’s products or services — in order to avoid concerns under competition law.

(12) Most-Favored-Nation Terms

The Guidelines also address situations in which startups are, at the request of investors, made subject to most-favored-nation (MFN) terms (i.e., terms requiring that the investor receive conditions as favorable as, or more favorable than, those granted to other investors).

According to the Guidelines, the inclusion of MFN terms is not, in itself, immediately problematic under Japanese competition law. However, the Guidelines caution that, where an investor—particularly one with a strong position in the market—imposes MFN terms, and if it make it difficult for competitor of the investors to offer more favorable terms to the startup, thereby reducing their incentive to engage in transactions and distort competition between the investors and such competitor and potentially give rise to market foreclosure effects, the arrangement may be regarded as trading on restrictive terms under Item 12 of the General Designation.

The Guidelines provide the following illustrative examples:
– Company GG agreed to an MFN clause requiring that, if any future investor were granted more favorable terms, those terms would automatically apply to the existing investor. As a result, Company GG ceased to receive investment offers from other investors.
– Company HH granted MFN terms to an existing investor. Prospective investors who considered making additional investments ultimately refrained from doing so due to the presence of such MFN provisions.

In the event that investors impose an MFN clause on a startup, it is important to review whether the imposition of such clause may give rise to concerns under competition law, in light of the criteria suggested in the Guidelines.

Go back to the previous chapter (Business and Capital Alliance)

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.