Q: Jane's Firm expanded its business and she hired a certain Mr. Yamada as a director in charge of marketing. She soon discovered that Yamada had established a company of his own that was in direct her bagel business. What can Jane do?

A: She can take legal action against Yamada. According to the Commercial Code (Article 264), a director who intends to complete a transaction in competition with the company must make available all the material facts relating to the transaction and give them to the board of directors and obtain their approval.
If a director completes a transaction without obtaining approval, the board may deem it to have been conducted on behalf of the company. The director then becomes liable for damages suffered by the company and lie may also be subject to a fine not exceeding one million yen.

Q: What if Yamada established his company after he resigned as a director of Jane's company? @

A: In principle any person has the freedom to choose his or her occupation. This fundamental human right is guaranteed by the Constitution. Therefore, it is difficult to prohibit someone like Yamada from engaging in such competitive activities, especially if he started the new business after lie quit Jane's company.

Q: What if Yamada, while he was still a director of Jane's company, began making a preparations for the new company and lured some of Jane's employees away so they could work for him?

A: That would not be considered a violation of Article 264 of the Commercial Code since-at that point-had not actually engaged in competitive activities. A director of a company, however, has a fiduciary obligation (a duty to act primarily for the benefit of another in matters connected with his undertaking) toward the company. In a 1988 ruling, the Tokyo District Court said that a director of a computer company was liable for damages to the company. The court determined that the director enticed unity employees to work for a company he was setting up the court viewed this as a violation of his fiduciary obligation toward the company.

Q: What if Yamada started his business using a customer list that had belonged to Jane's company?
A: In a 1993 ruling, the Tokyo District Court said (hat an employee of a company selling men's wigs was liable for damages suffered by the company. in this case, the employee. copied a customer list without authorization from the company and4 after lie quit1 used the list to sell wigs iii direct competition to his former company. The court determined that (1) the customer list was a valuable property that belonged to the company; (2) the company had marked the list confidential and had treated it as such; and (3) the information contained in the list was not in the public domain.
I based on this, the court concluded that the employee had violated the Unfair Competition Prevention Law which protects trade secrets. The employee was ordered to slop selling wigs to the customers on the list. He was also ordered to destroy the list and pay damages. In Jane's case, if her customer list satisfies the above conditions, she would most probably prevail.
The author, Jun Norisugi, is a practicing lawyer at Norisugi & Associates and specializes in international business affairs.