2018/05/20

CHANGING ROLESOF BORDERS
Takehisa Nakagawa
Professor of Law, Kobe University
May 20, 2018

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contents■ Introduction■ Is Extraterritoriality Good or Bad?
■ Analytical Framework (proposal)■ International Law Analysis■ Some Examples■ Concluding Remarks

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Introduction■ Can state laws be applied to a person or conduct beyond its borders?
■ This issue has not been discussed as such in private law (rather discussed asconflicts of law/ private international law).
■ Has been mostly discussed in criminal law (since 19th century) using several
principles, such as territoriality, nationality, protection, universality.
■ Now vigorously discussed in certain regulatory areas, such as competition law andsecurities exchange law (especially these 50 years, triggered by the US), producing“effects doctrine.”■ It seems that international agreements are more frequently, and successfully, used
to deal with this topic in tax law and environmental law.

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Introduction■ Now the topic is gradually sneaking into other areas of public law, including privacy(or data) protection, consumer protection laws, and even business licensing laws.
■ This presentation tries to show how to analyze this issue using (supposedly)
domestic law thinking.
■ It also tries to show how the international law and domestic law can work together.

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contents■ Introduction■ Is Extraterritoriality Good or Bad?
■ Analytical Framework (proposal)■ International Law Analysis■ Some Examples■ Concluding Remarks

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Is Extraterritoriality Good or Bad?
(1) Regulatory environment approach■ Rise of online economy (SNS, e-commerce, sharing economy, fin-tech) makes almost
every piece of regulatory legislation arguably be applicable beyond state territories.
■ If extraterritoriality is denied, regulatory differences will be caused among online
businesses targeting the same consumers/markets. Such regulatory disparity is notdesirable.
■ E.g., should Google be registered under the Telecommunications Business Act ofJapan and be subject to the Act’s “secrecy of communications” provision? Japanesecompetitors are severely regulated by the Act.

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Is Extraterritoriality Good or Bad?
(1) Regulatory environment approach■ If the Act is applied to Google, and it would be banned to analyze Google mailcontents at least with regard to Japanese users, in the same way Japanesecompetitors are banned. That would kill Google’s business model while providing fora level playing field for its competitors.
■ By pursuing extraterritoriality, on the other hand, domestic laws would globally be
criticized if they are not persuasive enough. Think of the Google example.
■ But regulatory reform could eventually follow. Conflict would create a new world.

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Is Extraterritoriality Good or Bad?
(2)It is (almost) everywhere■ There are barely unnoticeable examples of extraterritorial application of domestic
laws. It can be said to be omnipresent.
■ They are unnoticeable because they would cause no conflicts between states, buttheoretically they are still examples of extraterritoriality of statues.
■ E.g., The Administrative Agency Information Disclosure Act (“FOIA”) gives “any one”
the right to apply for disclosure of government documents. It creates rights both
inside and outside the territory of Japan.
■ E.g., The Election Act covers voting rights of Japanese nationals outside Japan.

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Is Extraterritoriality Good or Bad?
(2)It is (almost) everywhere■ Sup. Cot decisions of 2006 & 2007. Atomic Bomb Survivors' Assistance Act provides
for AB survivors’ entitlement programs such as healthcare allowances. Although the
Act does not limit its scope to those whose domiciles are in Japan, the government
interpreted the Act not applicable to those recipients who have afterwards moved
their domicile to another state, and said “their right to receive money simply
vanishes.”■ The plaintiffs, Korean and Brazilian nationals who came back to their homecountries after obtaining their entitlements, challenged this interpretation in court.
■ The Sup. Ct. flatly denied the government’s interpretation, holding that it wasagainst “the spirit of the act” to help the difficult situations suffered by the AB
survivors. The Court was not bothered by extraterritoriality at all .

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Is Extraterritoriality Good or Bad?
(2)It is (almost) everywhere■ Private international law is another example of extraterritoriality, though not regularly
described so.
■ If a person in State A sues another person in State B in a State B court, and if thecourt chooses a State B law as applicable, the State B law would reach a person inState A.
■ The only difference between private international law and extraterritorial applicationof criminal/public laws is that a state court may choose to apply foreign laws in theformer (choice-of-law, or “passive” extraterritoriality) while a state court/agency only
applies its domestic laws in the latter (no choice-of-law).

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Is Extraterritoriality Good or Bad?
(3) Nothing unusual■ Laws are inevitably extraterritorial simply because people like to cross borders,either physically or by communications (by snail mail or digitally). Laws are created
for territorial governance, but the borders turn out to be easy-to-climb walls.
■ Cross-border activities are now basis (not part) of our daily life and all businessactivities, and our thinking about domestic laws should evolve accordingly.
■ Domestic Laws need extraterritoriality to retain their effectiveness, sometimes evento ensure equality. Extraterritorial application of laws should be regarded as aregular legal process, nothing unusual nor exceptional. International conflicts arenecessary process for legal developments, just like the government being sued
domestically when they make new laws or issue new rules and regulations.
■ Roles of borders differs depending both on time and areas of laws.

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contents■ Introduction■ Is Extraterritoriality Good or Bad?
■ Analytical Framework (proposal)■ International Law Analysis■ Some Examples■ Concluding Remarks

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Analytical Framework (proposal)(1) Definition of the issue■ First, Definition of “extraterritorial” “application” of domestic “laws”.
■ Two tiers of the question should be distinguished -- will discuss only (A)(A) “Applicability” of domestically created law (scope/reach/how far the law governs)--- law making (or interpretation), similar to the “choice-of-law” rules--- deciding whether the target conduct/person falls within the reach of the law(B) “Application of applicable (substantive) rules to facts”--- interpretation of substantive law

Sometimes (A) and (B) converge--- deciding whether the target conduct/person falls within the requirements of law

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Analytical Framework (proposal)(1) Definition of the issue■ Two targets of “extraterritorial” cases -- will discuss both(A) “conduct” outside the territory of a state(B) “status of persons/corporations” outside the territory of a state■ Laws -- will discuss public law/criminal law/private law-- Be aware: Other than private international law (traditional contracts, torts, andfamily law as provided for in Civil Law Code) and criminal law (traditional crimes asprovided for in Penal Code), there are public-law-like private/criminal law. Private
enforcement of regulatory laws and criminal enforcement of regulatory laws.
--- Thus, we should try to understand all legal areas under a single approach14

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Analytical Framework (proposal)(2)Three interests■ In determining extraterritorial applicability, three interests are relevant and to beconsidered.
1) Domestic interest: a trigger for extraterritoriality
Would the aim of the domestic law (public policy/ sense of justice/policy goals) becompromised by the target conduct/person outside the territory?
In other words, does the case here present domestically important issues rather
than totally foreign issues?

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Analytical Framework (proposal)(2)Three interests
2) Target entities’ interest:
Would it be reasonable or fair for the target conduct/person to be subject toforeign law?
Nationals have constitutional basis to obey domestic laws. Entering (physically)
foreigners are considered to have consented to obey the law. Similar explanation isnecessary for those who are not physically in the territory.
3) Other states’ interest:
Would interests of other states (places of the target conduct/person) becompromised by the extraterritorial application? Is Comity considerationnecessary?

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Analytical Framework (proposal)(3)Domestic interest■ Will see how the first factor (domestic interest) is considered in all areas of law:
■ Private law (Conflicts of law)
Usually none. Therefore choice-of-law is possible.
However, sometimes domestic interest prevails especially in torts and family law.
E.g., The choice-of-law rules of Japan require the court of Japan to negate punitive
damages rules of foreign law in deciding damages. Here Japanese law on torts is
applied to any cases with international elements.

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Analytical Framework (proposal)(3)Domestic interest■ Criminal Law
The protection principle: crimes against the state’s own interests, such as currency
counterfeiting, perpetrated outside the territory or by non-nationals are punishable . If
extraterritoriality is denied, the penal law would be significantly compromised.
The universal principle: crimes against human beings are punishable by any state
irrespective of place and nationality. Otherwise, the penal law would be powerlessagainst such grave crimes.
The nationality principle: crimes perpetrated by nationals outside the territory arepunishable. Nationals would otherwise evade the penal law simply by travelling abroad.
The passive nationality principle: crimes against nationals outside the territory arepunishable. Otherwise, the sense of justice of the penal law would be lost.

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Analytical Framework (proposal)(3)Domestic interest■ Public Law
Effects Doctrine: competition law protects market mechanism (therefor
consumers’ interest of the state). As far as a cartel agreement exerts influence tothe market/consumers of another state, its law should be applicable. Nationalities
and territoriality have nothing to do with the aim of the law.
E.g., “It is obvious that the objectives of competition law would be insufficiently
safeguarded if one applied competition law exclusively to conduct by nationals of
the enforcing state, or to conduct that takes place on the territory of the state: acartel is no less harmful just because the cartelists travelled to an exotic locationof their meetings; and consumers are hardly interested in the nationality of those
who exploit them.” by Florian Wagner-von Papp, UCL.

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Analytical Framework (proposal)(3)Domestic interest■ Public Law
Source of information: Privacy protection law protects personal information ofanybody within the territory. Such information must be protected in the same way
even after it crosses the border. Otherwise, simply by sending to and storing theinformation in no privacy protection state, the aim of the law can easily becompromised.
No nationality & territoriality: Some laws, such as AB Survivors Assistance Act,
need to ignore nationality and border because its purpose is that the government
helps all victims with perfect impartiality.

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Analytical Framework (proposal)(3)Domestic interest■ Note that, in public law, coercion is not necessarily required or used to achieve theaim of the law.
Companies who need businesses in the market would comply with orders, evenwith administrative guidance.
Government can make the order (or even noncompliance of guidance) public,
which would damage business reputation, not only among consumers, but among
business partners. As far as the order or guidance is legally issued, the reputation
damage is nothing illegal.

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Analytical Framework (proposal)(4) Target entities’ interest■ Will see how the second factor (target entities’ interest) is considered in all areas oflaw:■ Private law (Conflicts of law)
Expectation on which law would apply to their conduct is generally important.
That’s why “links” are important to choice-of-law.

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Analytical Framework (proposal)(4) Target entities’ interest■ Criminal Law
The protection principle: criminals are targeting a specific state. That makes
reasonable to make them subject to that state’s law.
The universal principle: universally criticized nature of crimes makes theperpetrator subject to every nation’s law.
The nationality principle: nationals can expect to be punished under their homenation’s law.
The passive nationality principle: do offenders should expect to be punished underthe victims’ home nation’s law? Generally no, except for in the case of crimes
intended against specific nationals (typically terrors against US tourists).

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Analytical Framework (proposal)(4) Target entities’ interest■ Public Law
Effects Doctrine: The cartel agreement has target territory (markets/consumers).
That should make them subject to the law of each market. But what if online
platforms happen to influence unintended states’ markets??
Source of Information: business operators who gather personal information(should) know where it comes from. That should make it reasonable that they are
to be regulated by the law of source of information.
No nationality & territoriality: Under the AB Survivors Assistance Act, recipients
under the Act usually expect to retain their right for allowances wherever they live.

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Analytical Framework (proposal)(5) Other states’ interest■ Will see how the third factor (other states’ interest) is considered in all areas of law:
■ Private law (Conflicts of law)
None at the level of States. That’s why “there is no int’l law limitation.”■ Criminal Law
All principles: every state wants the same way, and conflict is unthinkable.
■ Public Law (1) No conflicts would take place
Entitlements programs, such as AB Survivors’ Act

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Analytical Framework (proposal)(5) Other states’ interest■ Public Law (2) Conflicts are easy to take place, and need to think of settltment
Tax: tax on one activity is dividable among relevant nations, thus tax agreements.
Regulatory: complicated--- Among the targeted states (whose markets are targeted)each state should apply their own law independently, no conflict here.
--- Between the targeted state and the conduct state:
If the targeted state law requires to do things allowed in the conduct state
if the targeted state law requires to do things that are illegal in the conduct state26

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Analytical Framework (proposal)(5) Other states’ interest■ Note that this third factor could be weighed differently depending on who sues.
If the government sues in the court (criminal law/public law) or make administrative
orders (public law), does the court need to be worried about conflict with otherstates? International conflicts can only be managed by the executive/agencies.
This would fit the fact that if the law explicitly provides for extraterritoriality, the court
would not disregard it.
On the other had, in the case of private enforcement suits, the court might be
attracted to “a presumption for non-extraterritoriality.”

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contents■ Introduction■ Is Extraterritoriality Good or Bad?
■ Analytical Framework (proposal)■ International Law Analysis■ Some Examples■ Concluding Remarks

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International Law Analysis(1) Several versions of int’l law■ International law has rich history of discussion on the topic, especially in criminallaw.
■ Several versions of international law seems to exist.
 US (its domestic courts’) understanding of int’l law, as expressed in the
Restatement (Third) of Foreign Relations Law of 1987
 European, academic understanding of international law as would be voiced byinternational tribunals (ICJ, etc.) + US Second Restatement of 1965
■ Using the US Third Restatement, I have some questions about “terms” used there.

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International law analysis(2) Overview of analysis■ Analysis goes as follows, with criminal law and competition law in mind:■ Out of states’ sovereign power (legislative, judicial, executive combined), salient
three aspects are picked up, each being called “jurisdiction.”■ Jurisdiction to prescribe: a state’s power to make its law (domestic law) applicable topeople, conduct, property. Extraterritoriality is analyzed using “bases”(territory,
nationality, protection, universality) and “other considerations.”■ Jurisdiction to adjudicate: a state’s power to make private entities utilize an
adjudicative proceeding, or authoritative decision-making process, of the state court(not necessarily adjudicated under domestic laws)■ Jurisdiction to enforce: a state’s power to make use of necessary measures for thelaws (domestic laws) to be realized.

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International law analysis(3) Prescriptive jurisdiction■ The three-factor analysis (proposal) is about prescriptive jurisdiction.
■ In my understanding, prescriptive jurisdiction should mean power to enact
substantive laws (creating substantive rights, duties, and statuses). And it
necessarily includes the power to decide their reach (whose and whereabouts ofrights and duties), or the authority to decide applicability of its laws.
■ Also, it should be noted that limited areas of substantive laws are discussed here:
laws that restrict right/freedom and/or create duties (criminal law, regulatory law,
tax law). Right-giving laws (entitlements programs, right to request information) areexcluded because that would not cause int’l conflicts. For the same reasons, privatelaw (contracts/torts/family) are excluded as well.

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International law analysis(3) Prescriptive jurisdiction■ Who, within the state, has the jurisdiction to prescribe?
Legislature may expressly provide for extraterritoriality. Judiciary (courts) need tointerpret the law if there is no explicit provision. The executive (president/ cabinet)
may show their interpretation about extraterritoriality, which may be respected by
the courts.
Out of the three factors, the last one (conflict with other states) would not be wellanalyzed by judicial courts. That matter needs to be dealt with by the
executive/agency level.

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International Law Analysis(4) Adjudicative Jurisdiction■ Jurisdiction to adjudicate
Jurisdiction to adjudicate is relevant only to private law lawsuits. (See international
jurisdiction of civil matter courts.) As far as the government (prosecutors/
agencies) sues in the court of their state, international law problems would nottake place in terms of this jurisdiction.

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International Law Analysis(5) Enforcement Jurisdiction■ What is clear about jurisdiction to enforce is that use of physical force by agovernment outside its territory is prohibited, unless consented by other states. Thisis because each state should protect its people and territory from physical invasion
by other states.
■ Other than that, the meaning of “jurisdiction to enforce” is unclear.
■ It seems to me that, if a law is extraterritorially applicable in terms of prescriptive
jurisdiction, all “enforcement measures” (enforcement jurisdiction) should also be
available to the government even outside its territory, only with the exception of theban on government’s use of physical force outside its territory.

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International Law Analysis(5) Enforcement Jurisdiction■ In criminal law, “enforcement” means police searches/arrest and judgment
execution. Subpoenas of witnesses during the court trial may be included, too.
■ Because defendants are in the territory for criminal trial, judgment execution would
pose no extraterritoriality problem.
■ Then, is it OK for the police to simply ask questions outside the territory? Embassies
regularly gather information in the host state. Why not other government agencies
do the same thing (at least through embassies)?
■ Is it OK for the trial court to subpoena witnesses abroad to testify at the court?
There is no way to punish them if ignored, but that does not mean the court has no
authority to subpoena. Is it against international law? Why?

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International Law Analysis(5) Enforcement Jurisdiction■ In public law, it is totally unclear what jurisdiction to enforce, or use of public power,means. In administrative law context, they could mean almost everything in statutes.
■ A public law has an “ends—means” structure: a statue is enacted for a specificpolicy goal. It provides for “programs” (prohibition, permits, entitlements, tax,
subsidies, etc.), “schemes to make the programs effective” (sanctions against
offenders/ compliance promotion), and “information gathering” (investigation).
■ Enforcement means at least “effectiveness schemes” and “information gathering.”
It sometimes include “programs.”■ To make the statute work, these three measures are always necessary. It is hard to
imagine how one can cut some parts out of the structure, and categorically deny
extraterritoriality

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International Law Analysis(5) Enforcement Jurisdiction■ Perhaps the least known part of administrative process is administrative
investigation. It works as follows.
■ Agencies typically start with “secretive investigation” (informally asking questions topeople near the target person/corporation), and only after being certain about theirsuspicion, they would move to “formal investigative stage.”■ Secretive investigation is not illegal. The target will have an opportunity to rebut
afterwards, such as before the administrative orders are finalized.

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International Law Analysis(5) Enforcement Jurisdiction■ Formal investigative stage consists of two categories.
■ One category is administrative “investigatory orders,” such as report order,
subpoena of documents and persons, and site inspection & inquiries. They must beobeyed, legally speaking, but without physical coercion. Disobedience of theinvestigative orders shall invite criminal punishments or other legal disadvantages.
■ Quite different from the above category are administrative “physical searches andseizures,” such as raids by enforcement officers based on warrants. Disobedience is
impossible here, therefore no punishment follows.

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International Law Analysis(5) Enforcement Jurisdiction■ Investigative orders are legally coercive in the same way as cease and deist orders
and civil penalties imposed by the court/agency enforcing competition law. It is hardto say that the former categorically be banned while the latter is allowed once
extraterritorial applicability is affirmed.
■ It is obvious physical searches and seizures are prohibited outside the territory. But I
suppose that secretive investigation and investigative orders should not be
categorically denied extraterritoriality.

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International Law Analysis(6) Difficult questions■ New problems are arising. May the government issue investigative orders todomestic parent companies/ subsidiaries for the purpose of obtaining documents
held by the target company that are outside the territory. E.g., Microsoft Case (Order
to MS in the US to bring mails held by its subsidiary in Ireland.)■ It is not unclear, in Japanese law, if the government may order to a parent company
to produce something held by its subsidiary. If the answer is yes, it will create
extraterritorial enforcement of law through domestic enforcement of law.
■ Another similar example. Japanese law is said to deny the concept of attorney-client
privileges. If the government agency seizes documents held by companies in Japanand if they include such communications with US attorneys as are protected by the
US law, that would constitute extraterritorial application of Japanese law and would
cause conflict. This problem would take place at any time.

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contents■ Introduction■ Is Extraterritoriality Good or Bad?
■ Analytical Framework (proposal)■ International Law Analysis■ Some Examples■ Concluding Remarks

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Some Examples(1) A very broad one■ The first Sup. Ct. decision on extraterritoriality of Anti-monopoly Act (Dec. 12, 2017)■ In 2010, the Japan Fair Trade Commission (JFTC) ordered several CRT(cathode ray tube) manufacturers ("CRT Manufacturers") to pay civil money penalty
for their participation in cartel agreements made outside Japan that fixed the priceof their products (CRTs) to be sold to several Japanese TV manufactures("Japanese TV Manufacturers").
■ The CRT Manufactures (parent/subsidiaries) were each based in Malaysia, Korea,
Japan, Indonesia, and Taiwan. (Only the subsidiaries were ordered to pay thepenalty.) The cartel agreement ended in 2007.
■ The Japanese TV Manufactures (parent/subsidiaries) were regular buyers of the CRT
Manufactures’ products (CRTs).

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Some Examples(1) A very broad one■ The fined CRT Manufacturers sued and asserted that the Anti-monopoly Act should not
apply to their cartel because (1) the agreements were made outside of Japan and (2)only the foreign subsidiaries of the Japanese Manufacturers purchased the CRTs.
■ Supreme Court upheld the JFTC's position, holding as follows:■ 1) The Act has no explicit provision on its applicability, or the scope of applicability, toconducts outside the territory of Japan.
■ 2) Considering the purpose of the Act (to ensure consumers’ interests by promoting fairand free competition), its provisions of cease and desist orders & civil money penalty
orders should be interpreted to be applicable to such cartel agreed upon outside theterritory as far as it interferes with the economic order of free competition in Japan.

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Some Examples(1) A very broad one■ 3) Thus, for any conduct that fits the Act’s requirements of the cartel (which includes“competitiveness of a certain market area is substantially restrained”), the cartelists
may be ordered to cease and desist or pay penalties.
■ 4) In this case, Japanese companies (TV Manufactures) were traders (buyers) of the
products sold under the price-fixing agreement. The cartel interferes with theeconomic order of free competition of Japan.
■ The scope of this effects doctrine is vigorously discussed among commentators.
Note that the Court did not mention the quantity of “sales” of those CRT-TV sets inthe markets of Japan (perhaps not much).
■ From the three-factor analysis, the Sup. Ct. analyzes the domestic interest and thetarget entities’ interest while there is no mention to the third factor.

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Some Examples(2) A very narrow one■ Protection of Personal Information Act, as amended in 2015 has a provision on
extraterritoriality.
■ Section75 Sections 15,16,18(excluding second paragraph), 19 to25, 27to 36, 41, 42(only the first paragraph), 43, and the following section shall also apply to a “business
operator handling personal information“ who has obtained, through its offering of goods
and services, personal information of persons who are in the territory of Japan, evenwhen the operator handle such personal information ….. outside Japan.
■ Section 42 (1) When a business operator handling personal information has violated anyof the provisions of Sections ….. , and when the Personal Information Protection
Commission finds it necessary to protect the rights and interests of individuals, theCommission may recommend the business operator to cease the violation and takeother necessary measures to correct the violation

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Some Examples(2) A very narrow one■ Section 42 (2) Where a business operator handling personal information having received
a recommendation under the provision of the preceding paragraph does not take therecommended measures without justifiable ground, and when the Commission finds thatthe serious infringement on the rights and interests of individuals is imminent, it mayorder the business operator to take the recommend measures.
■ Section 56 A business operator who violates orders issued under paragraph (2) or (3)of Section 42 shall be sentenced to imprisonment with work of not more than six months
or to a fine of not more than 300,000 yen.
■ This limit on extraterritorial applicability seems meaningless. There is no difference
between recommendation and order in the sense that the law applies to conduct outside
the territory. Is it because no extraterritorial principle in crim. law applies here?

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contents■ Introduction■ Is Extraterritoriality Good or Bad?
■ Analytical Framework (proposal)■ International Law Analysis■ Some Examples■ Concluding Remarks

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Concluding Remarks

Significance of borders differs depending on areas of law(a very tentative chart):
no borders

expanded fictitious borders

physical borders

entitlement programs
competition law (market based, at least cartels)
securities exchange law (place of issuance/ sales)
consumer protection (consumer based)
tax(online platforms?)

OR

tax (permanent establishments)

privacy protection (source based)criminal law (traditional crimes)
private law (contracts)
environmental law (theoretically)

private law (torts)
OR

environmental law + agreement48

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Thank you
For sharing my tentative thought on extraterritoriality, which is itself an “extra-territorial”
observation, stepping out of my territory of administrative law.

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