Japanese Space Law for Startups: ZeLo’s Five-Part Series
By Masaya Uchino, a U.S.-qualified space lawyer practicing in Japan at ZeLo
ZeLo’s Japanese Space Law for Startups: A Five-Part Series is meant for entrepreneurs, non-space lawyers, investors, and executives interested in entering the Japanese space industry. As Japan’s Space Activities Act (“SAA”) went into effect on November 15, 2018, it is now possible for private entities to obtain a license from the government to launch objects into space and conduct business without being tied to JAXA. Furthermore, there are currently a number of hot “new space” Japanese startup businesses that are starting to get funded such as iSpace (space mining) and AstroScale (cleaning up space debris).
Despite these developments, unfortunately, the majority of entrepreneurs, business developers and investors in Japan are unaware of the potential of the private space industry. Even if they are aware of the potential from an ideological point of view, there are excessively high barriers to enter this industry due to the perception that space activities are high risk with little financial return in the immediate future. It is not widely known that the legal tools for small and medium-sized enterprises to succeed in the space industry actually exist in Japan, especially with the SAA coming into effect. Together with other customary norms that have been developing in the space sector, the outlines of a path for Japanese space business to enter into the final frontier has started to become clear. This article addresses five major myths that are construed as “legal hurdles” that are preventing space entrepreneurs and investors to take advantage of recent developments. Each hurdle is addressed by providing a concrete analysis of how the hurdle can be overcome with existing legal methods and processes. This series will provide the legal solutions to overcoming the following concerns that entrepreneurs and investors often face.
- Space Is a High-Risk Industry (Lack of Funding, High Level of Liability)
- Procurement and Export Control Issues (e.g. ITAR)
- Registration Procedures in Japan
- Undefined Property Rights and IP Protection
- Complicated Space-Related Contracts and Business Models
After getting over the initial excitement of a business idea related to outer space activities, two enormous walls fly up that often prevent entrepreneurs and investors in allowing the idea to progress: (1) there is significant funding required for infrastructure and R+D for space-related business; and (2) there is a huge amount of potential liability that comes with investment into products that cost hundreds of millions of dollars.
This section will address both these issues in detail. Regarding the financing aspect, this section will outline how funding is actually available in Japan both through corporate venture capital and perhaps alternative forms of financing. Second, this section will discuss what Japan’s space legislation looks like and compare it with other jurisdictions to demonstrate the merits of Japan’s liability framework for domestic and foreign businesses.
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II. Funding for Space Business in Japan
As we will discuss in Section III below, outer space business is not as high risk as it appears. As evidence of this, Japanese space ventures have been receiving funding just as any other industry in Japan and overseas. Furthermore, given certain similarities between the outer space industry and the aircraft industry, there are untested models of financing available such as asset-based financing that could revolutionize how investors view investments into space and related technology.
A. Current State of Financing of Space Business in Japan
As a threshold issue, it is important to recognize that Japan is not Silicon Valley. The Japanese market is relatively small both in terms of investment amounts and the average deal size of venture capital transactions. In 2015, American VC investment totaled about $59 billion across 4,380 deals, whereas Japanese VC investment only totaled $1 billion across 1,162 deals.[i] One of the major reasons for this phenomenon lies in how it is easier for Japanese startups to go public, which shortens the period for potential high-level fundraising through venture capital investments.[ii] Regardless, of the overall figures, when it comes to early seed-round and Series A financing, Japanese space startups have done fairly well.
One of the most successful ways in which space start-ups have raised funds has been corporate venture capital.[iii] By finding large companies who can benefit from the service that the startup is offering, the corporate investor is motivated to not only provide funds but also to foster a new business line for itself. Below are some successful financings within the last year.
- ISpace raised $90 million in a Series A Financing comprised of 12 investors[iv] to launch two private moon missions with the ultimate goal of mining resources and has the attention of not only Japan but the whole world.[v] Eleven of the twelve investors were other large companies such as KDDI, Japan Airlines and Dentsu with the remaining investor being the Development Bank of Japan.[vi]
- PD Aerospace was formed in 2007 with dreams to create a market for space tourism. PD Aerospace completed their Series A financing for 520 million yen recently with their investors also being large companies such as All Nippon Airlines, HIS and others.[vii]
- AstroScale, a space debris removal company, has raised:
- $7.7 million for its Series A in 2015
- $35 million for its Series B in 2016
- $25 million for its Series C from companies including ANA Holdings and OSG Corp; and
- $50 million for its Series D on October 31, 2018 from companies including the Innovation Network Corporation of Japan, SBI Investment and Mitsubishi Estate Company.[viii]
- Telexistence is a company that aims to industrialize remote control technologies, including virtual reality, with specific applications in the outer space industry include remote control of robots and machinery to perform repairs, medical care, and other technical processes. In late November 2018, they raised approximately a $3 million Series A round with various corporate and traditional venture fund investments.
- Infostellar, a developer of a cloud-based satellite antenna sharing platform raised a $7.3 million Series A investment led by Airbus Ventures, also with additional funds from WERU Investment, D4V, Sony Innovation Fund and 500 Startups Japan.[ix]
These success stories show that money is being invested in space in Japan. While traditional venture capital funds definitely contribute their share, it is worth noting that much of the big money lies with Japan’s large corporations. In fact, 3 of the top 25 cash-rich companies are Japanese.[x] When searching for investors to back their projects, space startups should target the venture capital funds and companies that already have a history of backing space-related businesses.
B. Will Rocket and Satellite Financing become like Aircraft Financing?
Investors sometimes ask whether rocket and satellite financing will become standardized internationally as aircraft financing. This is a good question. The Cape Town Convention on International Interests in Mobile Equipment (“Cape Town Convention”) currently governs asset-based financing of aircrafts and aircraft parts (like engines). The Convention was created to standardize different conflicts among laws relating to security interests that investors have in cross-border holdings to ensure that different legal regimes do not inhibit a creditor’s security interest in a high-value asset. While Japan is not party to the Cape Town Convention, there are many transactions in which Japanese aircrafts or investments into foreign aircrafts deal with countries that have ratified the Cape Town Convention.
In 2012, a Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Space Assets (“Space Protocol”) was drafted. The Space Protocol requires ten-member states to ratify the document for it to come into force. Accordingly, it is not effective yet. However, it is important to know that such a document already exists and come into play when international politics aligns.
Currently, similar to the rest of the world, Japanese aircraft financing uses an asset-based financing model with the aircraft as collateral even though they are not party to the Cape Town Convention. The Aircraft Mortgage Act (Act No. 66 of 1953) allows for registrations of security interests in aircrafts and aircraft parts. When foreign companies are involved (or, often times, even for domestic companies), the airline company first creates a special purpose corporation (“SPC”) that serves the sole purpose of owning and leasing the aircraft. Then, lenders invest in the aircraft that the SPC owns by providing loans that have the condition of holding the aircraft or an aircraft part (such as an engine) as collateral. The SPC then leases the aircraft to the airline company for it to conduct business. The airline company pays the SPC in return for the lease. Upon earning enough from the lease payments, the SPC can pay back the lender. If the SPC cannot repay the loan, then the lender can take control of the aircraft that has been put up for collateral.
Often times, there are multiple lenders from different jurisdictions investing in multiple aircrafts and/or parts. Such complex transactions require lenders to perfect their security rights in the collateral by registering them with the appropriate authority so that the lender can get a priority right over the security interest.
As of 2018, there are no publicly known asset-based financing arrangements where rockets and satellites or their parts are being financed as aircrafts are (such arrangements may actually exist but just not publicized). However, this may become an alternative method of financing for those space start-ups who are struggling to receive equity financing.
C. Connecting Investors to Real-World Applications
Whether you go for a standard venture capital financing approach, try out asset-based debt financing or become creative and try another approach, you will inevitably come across an investor who has never even thought about space business. While this article is not meant to be a guide for how entrepreneurs should approach investors, it is critical to at least note that almost all investors are looking to find real-world applications of your outer space business idea that will generate profit in the near future. In order to demonstrate this in your business plan, pitch deck, or private placement memorandum; it becomes necessary to show a firm understanding of the legal framework in which your idea will operate and map out a step-by-step plan of what regulations will apply and how your business model will fit or overcome it. By doing so, the business idea will start gaining a tangible foundation on which it will operate and start to become more real and feasible for the investor. Furthermore, as we will discuss below in Section III, there are certain “space-friendly” jurisdictions whose laws aim to support emerging space businesses by creating fail-safe measures to mitigate liability in many cases. Demonstrating a strong knowledge of this framework and how you have done your homework in comparing various countries’ space legislation in deciding what jurisdiction to operate in will undoubtedly impress your investors. Once the investors are impressed with the legal foundations of the model, the rest will be up to your value proposition and business skills to convince people of how the model will lead to profit.
III. Mitigating High-Risk Liability: The Advantages of Japan’s Space Legislation
A. What is Japan’s Space Legislation Like?
1. Overview of Space Law Relevant to Japan
Japan has ratified four of the five main space treaties. Japan acceded to the Outer Space Treaty (“OST”) in 1967. Then, in 1983, it ratified the Convention on International Liability for Damage Caused by Space Objects (“Liability Convention”), the Convention on Registration of Objects Launched into Outer Space (“Registration Convention”) and the Agreement on the Rescue of Astronauts, the Return of Astronauts and the Return of Objects Launched into Outer Space (“Rescue and Return Agreement”). Notably, Japan has not signed the Moon Agreement.
The OST and the Liability Convention are relevant to the issues discussed in this article. Primarily, under Article VI of the OST, Japan has a duty to supervise all non-governmental space activities that occur within its borders and by its citizens.[xi] Article VII of the OST and the Liability Convention provide teeth to this obligation by holding the launching state liable against other states for any damage it causes so long as such damage is not caused by gross negligence or intentional conduct by the claimant state.[xii] Also, under Article VII of the Liability Convention, any liability that would otherwise have been incurred by private citizens shifts to the state. This provides significant impetus for states that are parties to these treaties to draft national legislation that provides a framework to regulate non-governmental actors to conduct space activities. On December 16, 2013, the UN General Assembly passed a resolution that are Recommendations for National Legislation (“UN Recommendations”) relating to space legislation. While these recommendations are non-binding,[xiii] they provide a general framework of what national space legislation should ideally include and address. The UN Recommendations suggest that the scope of national legislation should address subjects such as appropriate regulations of launching objects into and back from outer space, operation of a launch or re-entry, operation and control in orbit, design and manufacture of spacecraft, application of science and technology, exploration activities and research.
Given how almost all of Japan’s space activities were conducted by JAXA and its preceding space agencies, Japan did not have any domestic space legislation in force as prescribed under Article VI of the OST until very recently. A basic framework was put into force on August 27, 2008 with the Basic Space Act. However, this law only set forth the core principles of Japan’s national space legislation and delayed the enactment of the specific legislation that the UN Recommendations suggest that national legislation enact until a later time. After almost an entire decade of deliberation, the Space Activities Act (“SAA”) was finally put into force on November 15, 2018. Private actors for the first time could obtain licenses to launch objects into space without political affiliation with JAXA. The administration that drafted the SAA had a keen interest in developing Japan’s private space industry to become globally competitive given that the country had gotten off to a significant late start compared to other global actors like the US and Europe.
2. What is the Scope of Japan’s Space Activities Act?
The scope of what the SAA covers is defined quite broadly. Despite the law being referred to as the “Space Activities Act,” it does not define or even mention the concept of “space activities.” Instead, it generally defines the following three types of activities as the scope of the legislation: (1) launching objects such as satellites into space; (2) managing satellite operations; and (3) managing satellite launch sites. With respect to the first activity, Article 4(1) states that “a person must obtain a license from the Prime Minister each time it desires to conduct a ‘Satellite Launch, Etc.’ within the country, or conduct a ‘Satellite Launch, Etc.’ using a vessel or aircraft with Japanese citizenship that has a Launching Facility installed.”[xiv] “Satellite Launch, Etc.” is defined as “managing or operating a Launching Facility by oneself or through others and, upon loading a Satellite onto a Satellite-launching rocket, blasting off and accelerating that rocket until it reaches a constant speed and altitude at which point such Satellite separates.”[xv] Notably, “Satellite” is somewhat of a misleading term as it is defined extremely broadly as “an artificial object which is used upon being launched into the Earth’s orbit or beyond, or placed on a celestial body other than the Earth.”[xvi] This definition of Satellite essentially narrows the scope of the SAA’s coverage to objects that are either: (1) being launched into the Earth’s orbit or beyond; or (2) placed on a celestial body other than the Earth. This definition would exclude suborbital flights. However, according to scholars, this was intentionally done given that the possibility of suborbital flights affecting traditional orbital paths are very low and should not require government supervision.[xvii]
By keeping the scope of Article 4(1) as broad as possible, the SAA legislators essentially allowed for supervised governance (and OST Article VI compliance) over almost any activities related to launching any objects into space. Unlike some other countries’ space legislation that narrowly define what “space activities” means and limit the reach of their space legislation to certain space operations as they are known as of the date of enactment, Japan’s SAA cleverly leaves the door open for space activities that have not been contemplated at the time the law was drafted. In the future, if new types of space activities become possible (e.g. space tourism, space colonization) and such activities fall outside the scope of the SAA, in order to comply with Article VI of the OST, the government would have to either amend the SAA or legislate new laws to ensure adequate supervision of new types of space activities that are not contemplated in the SAA. Generally, most private actors were completely on board with the SAA given that it did not grant preferential treatment to any type of business or sector. However, when attempting to govern specific space activities, there may be specific interest or industry groups that oppose the legality or certain regulatory frameworks of such activities. To avoid delaying business lines that comply with the basic requirements of Article VI and the SAA to go to market, the broad manner in which the SAA is drafted prevents any political debate and allows space business to be tested and, if necessary, further regulated as the world begins to explore and learn what works and what does not in this new chapter of commercial history.
To provide teeth to this license scheme, Chapter 8 of the SAA outlines the penalties for non-compliance with the act. The maximum penalties for non-compliance are up to 3 years imprisonment, a fine of up to 3 million yen or both.[xviii] The maximum penalties may be issued for: (1) a person who has launched a satellite or is managing satellites without obtaining a license from the Prime Minister’s Office (violation of Article 4(1) or Article 20(1)) or engages in activities not authorized by such licenses; (2) a person who has obtained any license authorized in the SAA through deception or wrongful means; or (3) when a party that is licensed to manage satellites fails to comply with a corrective order issued by the Prime Minister’s Office. This framework above for violations of licenses is reasonably straight-forward, similar to other types of Japanese legislation and does not come as any surprise.
3. The SAA’s Unique Space-Friendly Liability Framework
In addition to this broad scope described above, a critical aspect of the SAA is the scope of who it holds liable for damages caused by the launching of rockets, satellites, and other objects into space. The SAA only holds parties or vessels that have Japanese citizenship strictly liable for any damages as narrowly defined in Article 35 and 36.[xix] These articles limit liability for launching rockets and satellites to only those Japanese persons, entities or vessels/aircrafts that were directly involved with conducting the launch itself. In other words, any other Japanese or foreign party that is not directly involved with the launch operations (e.g. suppliers, transporters, construction contractors, etc) would not be held liable under the SAA’s scheme.[xx] Article 36 explicitly channels liability to the launching party and explicitly states that other parties that may normally be liable in business situations (such as under the Product Liability Act) are not liable for damages.[xxi] Notably, liability is not limited to natural persons and can reach third party manufacturers, suppliers and other non-launching parties.[xxii] However, if a party only either made materials/parts or provided labor in relation to the launch that caused damages, such suppliers are only held liable when the damages arose from that party or its employees’ intentional conduct.[xxiii] It is important to note that “gross negligence” or a similar concept is not included in addition to the intentional conduct carveout.
Furthermore, the act does not impose any rules regarding contributory negligence of victims given the significant unlikelihood that a victim would cause any events to aid in damages caused by rockets and satellites.[xxiv] Both on land/air and the sea, the government has a duty to notify the regional authorities to alert the relevant actors to engage in safety protocol when there is a rocket launch.[xxv] However, accidents can always occur. Therefore, the SAA also has a force majeure clause, where the government will cover damages for any events outside the control of the parties such as natural disasters.
The SAA requires licensees to execute insurance agreements that covers any liability caused by the launching of rockets or satellites.[xxvi] These insurance agreements must be approved by the government. If the launching party or insurance company cannot meet their obligations, under Article 40, the SAA requires the government to cover any expenses that a party or the insurance company fails to provide per the terms of the approved insurance agreement.[xxvii] The government also has subrogation rights to third parties under Article 45. When third parties are indemnified, the government must fund the lesser of: (i) the funds the government supplied; or (ii) the amount of indemnification promised.
From a business perspective, this liability scheme under the SAA may seem unfair for the Japanese government in many ways. However, given that one of the primary incentives of the SAA is to stimulate the Japanese economy and the private space industry, the legislators seemed to have carefully drafted this liability scheme to try and attract foreign business into the country. Given this background, legal scholars have presented the following additional theories regarding how liability is so narrowly channeled to Japanese launching parties. First, because there are so many parties involved in the act of launching a rocket, pinpointing who should be held liable when an accident occurs can be very difficult. Situations may include a slightly defective part, transportation accidents, manufacturing defects, environmental factors, launch installation procedure errors, launch plan errors, launch protocol errors and many other factors. Considering how it is difficult (if not impossible) for victims to escape danger from space debris or launch failures, many would argue that strict liability makes sense in a case like this whether or not the defect or mistake was intentional or negligent. However, in order to determine who should be liable, rather than going through expensive and complicated dispute resolution procedures (be it arbitration or litigation) that may not produce the best result in terms of identifying the party at fault and/or remitting the compensation due to the victims of the accident, scholars argue that a simple liability scheme would be more effective. As Articles 39(1) and 40(3) state, victims of space debris accidents have a priority to be made whole in advance of any creditors. The SAA liability scheme keeps this principle in mind by simplifying potential dispute resolution conflicts and creating the mandatory insurance scheme as well as the governmental indemnification obligation to ensure that victims are compensated properly.
Second, the SAA liability scheme incentivizes manufacturers and suppliers to enter the market. Since 1994, Japanese law has imposed strict liability on manufacturers for any defects from products.[xxviii] While there are no punitive damages provided for product liability cases in Japan, there is no limit to the amount of damages that can be ordered by a court. Given this legal landscape, prior to the SAA, the space industry posed extremely high risks for parts suppliers. As described above, a rocket launch can go wrong in many ways and the slightest manufacturing defect, lack of warning or failure to customize the part to the rocket or launch in question could result in strict liability. Therefore, by having liability for launches channeled only to launching parties buys suppliers a free pass from liability. The risk is shifted to the launching parties to conduct a thorough review of all aspects of the launch, including all parts and services. This may further stimulate other lines of business for quality control of the manufacturing process.
Third, it is critical to keep in mind that the scope of liability is only limited to Japanese parties. In other words, remarkably, no foreign party can be held liable under the SAA in conjunction with the act of launching rockets and satellites. Most other national legal regimes hold the foreign party liable for damages they have caused given the high level of risk and damages that can result from space launch accidents. Scholars believe that Japanese legislators decided to shoulder this burden in order to promote foreign parties to conduct space business using Japanese launch sites. As discussed in Section I above, there are only eleven countries in the world that have the capability of launching objects into space. It will be interesting to see whether the SAA liability scheme increases the utilization of Japanese launch sites given this lenient legal framework.
4. The SAA Does Not Supersede Japanese Civil Law
Under the SAA, general indemnification rights against third parties (including foreign parties) are available under Article 38(1). Importantly, Article 38(1) specifies that suppliers of components/ parts/labor may only be held if such supplier intentionally acted to cause damages. However, Article 38(2) specifies “[t]he provision in the previous paragraph must not obstruct other special contracts related to indemnification.” Article 38(2) makes Article 38(1) a non-mandatory provision. Under Japanese Civil Law, if a statutory provision is not mandatory, it is possible for contractual provisions to supersede a statutory provision.[xxix] Accordingly, although the default statutory rule seems to significantly restrict liability for foreign suppliers, it is possible for parties to contractually agree on additional liability provisions. So long as the contractual provisions are enforceable under Japanese Civil Law, parties will be able to agree on any liability scheme they find to be appropriate. Therefore, negotiation of representations and warranties, limitations of liability and indemnification provisions of contracts related to space operations will become a critical point for space law practitioners.
In addition to paying attention to the liability provisions in contracts, foreign actors will need to be aware of the unique Japanese laws that can affect conducting business under Japanese law. One example that foreign actors often overlook when conducting business under Japanese law is the Act against Delay in Payment of Subcontract Proceeds, Etc. to Subcontractors (“Subcontract Act”). This law, which many countries around the world have begun to enact just recently, was enacted in 1956 in Japan and seeks to protect small and medium enterprises from essentially being bullied by larger businesses that hold significant leverage in negotiations either by market share, reputation or capital prowess. The Subcontract Act prohibits certain types of transactions that are patently unfair.[xxx] Additionally, a closely related provision under Japanese antitrust law is the concept of “Abuse of Bargaining Position” under the Antimonopoly Act. This provision essentially prohibits a larger company from exercising their dominant position (not just market position but bargaining position) when negotiating with a relatively smaller company.[xxxi] Given the current state of how foreign players in the space industry are much larger than many subcontractors in Japan that will start securing competitive business niches, when foreign actors elect Japanese law to take advantage of the advantageous SAA provisions, they need to ensure that they are complying with relevant antitrust and Subcontract Act provisions. As discussed above, the business of manufacturing and launching a rocket can involve hundreds of subcontractors in order to secure a myriad of products and services. Therefore, compliance with these types of laws will become increasingly important.
5. Summary of the Advantages of Japanese Space Legislation
Other than certain quirks in Japanese contract law to keep in mind (as discussed in section 4 above), the SAA provides for a fairly risk- free environment to operate space business.
If you are like most actors in the space industry and are not directly involved in the launching of space objects, you will not be directly liable for any damages caused in space. If you are a Japanese entity, this means that you are generally indemnified for any damages caused by the launch unless there are specific contractual liability obligations that you signed on to with the launching party. If you are a foreign entity, the same analysis applies with the added aspect that you may be subject to separate liability under your home jurisdiction. As resolving a cross-border dispute of this magnitude can be extremely costly and painstaking, it is recommended that foreign businesses incorporate a Japanese entity so that it can fully enjoy the protections of the SAA.
If you are actually a launch party, so long as you have a good insurance agreement in place (as required by the SAA), you are in good shape. The insurance agreement will cover up to 200 million yen worth of damages for most cases. Even if the damages go beyond, this depending on the circumstances, the government has the ability to indemnify up to 3.5 billion yen worth of damages.[xxxii] Accordingly, securing a favorable insurance contract and a government indemnification agreement in advance of conducting space activities become crucial steps for launching parties (whether Japanese or a foreign company operating via a Japanese entity).
B. What About Other Jurisdictions?
Currently, 22 countries[xxxiii] have passed national space legislation. While each set of laws may not seem to differ greatly on their face, these minor differences end up setting them apart in a major way for legal and business purposes. Rather than describing each country’s laws, this section will discuss certain key issues where such divergences can be seen that have an effect on global space business: (1) scope; (2) jurisdiction; and (3) liability framework.
National space legislation can be divided into two major camps – those that define “space activities” and those that do not.[xxxiv] How “space activities” or the equivalent is defined can have an important impact as it determines the scope of what types of activities are subject to the law’s restrictions. As will be further explored below, there may be new types of space activities (e.g. space mining), the details and consequences of which we have not yet contemplated as of 2018 that could fall outside certain definitions of space activities that have been presently drafted at the time of this article. Keeping these possibilities in mind, if the definition of space activities is drafted too narrowly, there is a risk that the legal enablement of future types of space activities may be delayed by political impediments when legislative amendments become necessary.
Within the first camp of countries that explicitly define what “space activities” are, there are three subgroups. First, the strictest countries (e.g. Austria, Netherlands and Sweden) essentially state that any space activity requires authorization from the government.[xxxxv] The scope of each differs slightly. For example, Dutch law does not contain the operation of a launch site/facility in its “space activities” definition.[xxxvi] The way the Swedish law is drafted, it is unclear whether suborbital flights would be subject to the act, raising questions about whether separate legislation would be required for suborbital space tourism.[xxxvii] (Notably, this is also an issue for Japan.) Second, some countries (e.g. Russia, Ukraine and Kazakhstan) define “space activities” broadly but do not cover certain activities whether intentionally or not.[xxxviii] For example, the Russian law broadly defines “space activities” as “any activity immediately connected with operations to explore and use outer space, including the Moon and other celestial bodies” and enumerates nine specific types of activities that must be licensed by the government.[xxxix] Third, some countries (France, South Africa) require licensing of activities that go beyond the scope of how they define “space activities.”[xl] For example, French legislation requires a license for transferring command of a space object to a third party and obtaining control over a space object that has not been authorized.[xli] The South African legislation brutally requires that “any participation in any space activities” requires a license.[xlii] This has been interpreted to even mean that any participation by a South African company (e.g. a supplier of parts) with a launching operation will require a license by the government.
Within the second camp of countries that do not define a “space activities” concept, there are two sub-groups.[xliii] First, some countries (Nigeria, UK, Belgium) enumerate a wide range of activities.[xliv] For example, the Nigerian and the UK laws regulate the following three activities: (1) launching or procuring the launch of a space object; (2) operation of a space object; and (3) activities in outer space.[xlv] The Nigerian law states the Nigerian National Space Council has the power to grant a license over these activities, whereas the UK law states that these activities may not be carried out with a license. Second, the laws of the rest of the second sub-group simply regulates the launch and return of space objects, including Australia, Brazil, S. Korea, Norway and the US.[xlvi] Japan’s SAA falls within the second camp that enumerates activities that require licensing without explicitly defining “space activities.” As discussed above, terms such as “space activities,” “space operations” or the equivalent are not used at all.
This discussion above hopefully shows that different countries define “space activities” in very different ways. While Japan’s definition is not perfect (as it leaves the issue of suborbital activity open for debate), it is still one of the more open definitions that allow for undefined types of space activity to still fall under the scope of the legal framework so that it can be legitimized.
There are two groups of countries on the issue of jurisdiction – those who try and reach the regulations of space activities outside their territorial jurisdiction and those that do not. Typically, national law provides for territorial jurisdiction in its territory and personal jurisdiction overseas. There are some odd exceptions. For example, the UK law applies to all UK citizens globally but excludes foreign government and nationals within its territory.[xlvii] The US Law states that, barring any conflicting laws in other countries, any entity organized or existing under the laws of a foreign country is subject to the legislation if a controlling interest (defined as 51% or above) is held by a US citizen.[xlviii] South Korea requires foreign nationals that intend to launch Korean vessels to apply for a license under its space activities act.
However, after surveying all of the quirks of the countries that have space legislation, Japan is the only one that strictly has territorial jurisdiction without any extraterritorial reach of personal jurisdiction. This unique point coupled with the liability framework discussed below truly makes the Japan’s SAA a golden legal vehicle for space business.
i. General Overview
Under international law, the liability scheme of private actors launching space objects into space is ambiguous given that the Liability Convention only imposes strict liability on the “launching state.” A “launching state” is defined as “a state that which launches or procures the launching of a space object or a state from whose territory or facility a space object is launched.[xlix] Objects that are launched by private space activities are not “launched” by a state. It is unclear whether they are “procured” by the state. Additionally, the words “territory” and “facility” are ambiguous. Accordingly, national legislation has the task of clarifying these concepts by imposing insurance requirements, limitations on liability and rights of recourse regarding third party liability.
As a threshold issue, most (if not all) national space legislation requires that launching parties obtain some sort of insurance for third party liability with various ranges of coverage, caps and deductibles.[l] Assuming that the launching parties enter into such insurance arrangements, the reach of liability and how the state government can seek recourse on behalf of its property and its citizens differs from country to country. Generally, most laws allow for state governments to seek recourse from the operators or owners of space objects.[li] Some laws state that if the government pays for damages, it can present a claim for indemnification against the operator that caused the damage.[lii] Other countries such as Brazil, Russia, S. Africa and the US hold licensees liable for damages regardless of the right of recourse of a state government.[liii] However, some laws also provide an indemnification regime where the government guarantees reimbursement of a certain amount under certain circumstances.[liv]
Most laws have some way of limiting the liability of the operators of space launches or other parties that the respective law holds accountable. There is also a range of what is excluded from such limitations of liability for cases such as failure to comply with the authorization conditions or willful misconduct or gross negligence on the part of the operator.[lxv]
As mentioned above, only South Korea, France, and now Japan are the only countries that solely hold launch operators solely liable.
ii. The French Liability Framework
The French framework differs by requiring French facilities, nationals and operators outside its territory to apply for a license under the French framework. However, the French framework limits liability only to the launching parties. In other words, foreign actors who are not involved with the launch itself are not subject to liability.
Launching parties have “absolute liability” for damage on the ground and in space and liability on a “fault basis” for damage caused in outer space.[lxvi] However, such liability ends on the year the obligations of the license are fulfilled. For any activities after this period, the law shifts liability to the government. Furthermore, the state guarantees damages caused to third parties by space activities (other than in cases of willful misconduct of the operator) on the ground and in airspace during the launch phase. This guarantee during the launch phase extends to third parties such as manufacturers and suppliers. While there is a cap of 60 million euros for this guarantee, this is also the ceiling for insurance that operators are required to obtain as part of the licensing process.[lxvii]
While this framework is the most similar to Japan’s SAA, there are a few minor differences that make Japan’s friendlier to both launching parties and non-launching parties. First, Japan’s SAA does not distinguish the threshold of liability between on the ground and in space. Second, Japan’s government provides a significantly higher ceiling of indemnification even after the insurance coverage runs out.
iii. South Korea’s Liability Framework
While South Korea requires foreign entities to apply for licenses under their national framework, it has a fairly lenient process similar to Japan. South Korea has a separate law just for its liability framework, called “Act on Compensation for Damage Caused by Space Objects”[lviii] and the law holds launching parties of space objects strictly liable for up to 200 billion won (as of December 3, 2018, approximately USD180.3 million) under Article 6. The act provides indemnifications for third parties not involved in the launch except for cases where such parties acted intentionally or with gross negligence. While Article 7 states that the government may assist with payment of damages beyond what is covered by the launching party’s insurance, it does not say anything about what would occur if the damages caused end up being beyond 200 billion won.
While South Korea’s liability framework has some great aspects, particularly the 200 billion won ceiling, Japan’s liability framework still becomes friendlier towards foreign actors given that they would not be subject to SAA registration. Furthermore, Japan’s exceptions for third party indemnification only reach up to intentional conduct and excludes “gross negligence.” Given that this term can be construed broadly in different jurisdictions, Japan limits holding third parties (including foreign companies) liable only to cases where it is clear that such party intended harm.
IV. Putting it all together: Merits of Doing Space Business in Japan
While many complicated topics were addressed in this article, the author hopes that the reader takes away the following 2 simple points:
- Investors in Japan are financing space startups.
- Japan’s Space Activities Act significantly mitigates risk for both Japanese and foreign businesses with regard to their liability to compensate damages from space-related activities.
For entrepreneurs: by understanding the second point through the discussion above, whether you are a Japanese business or a foreign business that seek to operate in Japan, you now have a very strong argument for why third-party liability should not be too much of a concern.
For investors: by understanding the discussion above, investing in Japanese space businesses should hopefully become more enticing as compared to other space businesses overseas.
The one disclaimer to the above statement is that Japan’s SAA liability framework does not supersede Japanese Civil Law. In other words, it is possible for contractual obligations to supersede the liability framework set out in the SAA. Accordingly, contract negotiations for space businesses will become absolutely critical so that the space business can take advantage of the SAA. A strong business lawyer that is well-versed in both complex cross-border transactions and international and Japanese space law will become critical in the initial phases of structuring a space business’ operations.
[i] Venture Enterprise Center, Japan, VEC Yearbook 2016 II-24 (2017).
[ii] Masaya Uchino, “Can Japan Launch Itself into Becoming a Leader in Global Space Business with its New Space Legislation?” 69th International Astronautic Congress Proceedings, Bremen, Germany, October 2018.
[iv] ‘Investors’ for ispace Series A round, Crunchbase (“Crunchbase Ispace Search”) <https://www.crunchbase.com/search/principal.investors/field/funding_round.has_funding_round.forward/num_investors/ispace-technologies-inc–series-a–803df4ef> accessed 24 June 2018.
[v] Darrell Etheringon ‘ispace just raised $90 million to launch two private moon missions by 2020’ 14 Dec 2017 <https://techcrunch.com/2017/12/13/ispace-just-raised-90-million-to-launch-two-private-moon-missions-by-2020/> accessed 24 June 2018.
[vi] Crunchbase Ispace Search .
[vii] PD Aerospace ‘A Total of 520 million yen for Series A Fundraising Conducted’ (31 May 2018) <http://pdas.co.jp/documents/Press_180531_En.pdf> accessed 24 June 2008.
[viii] https://spacenews.com/orbital-debris-removal-company-astroscale-raises-50-million/; https://spacenews.com/space-debris-removal-startup-astroscale-raises-25-million/
[x] Maria Obiols, ‘2017 Global Cash 25,’ Global Finance Magazine (24 June 2018) https://www.gfmag.com/magazine/september-2017/cash-piles-keep-growing accessed 8 Sept 2017.
[xi] Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, including the Moon and Other Celestial Bodies, Res 2222 (XXI) (1966) (“OST”), Art. VI.
[xii] Ibid art VII; Convention on International Liability for Damage Caused by Space Objects, Res 2777 (XXVI) (1971) (“Liability Convention”).
[xiii] Recommendations for National Legislation Relevant to the Peaceful Exploration and Use of Outer Space, A/C.4/68/L.2 (2012), preamble para 4 < http://www.unoosa.org/pdf/limited/c2/AC105_C2_2012_CRP19E.pdf> accessed 23 June 2018.
[xiv] Ibid para. 1.
[xv] Jinkoeiseitou no Uchiage oyobi Jinkoeisei no Kanri ni Kansuru Houritsu [Act Regarding the Launching of Satellites, Etc. and Management of Satellites (commonly referred to as the “Space Activities Act”)], Law No. 76 of 2016, art. 1 (Japan) (hereinafter, “SAA”).
[xvi] Ibid art 2(5).
[xvii] Ibid art 2(2).
[xviii] Zadankai, Uchu business wo meguru genjo to kadai [Current Situations and Challenges on Space Business], Jurist, No. 1506, May 2017.
[xix] SAA art 60.
[xx] Ibid arts 35, 36.
[xxi] Ibid art 35, 38(1).
[xxii] Ibid art 36.
[xxiii] Ibid art 38.
[xxv] Uga Katsuya, Uchukatsudouhou ni okeru Songaibaishouseido no Kento [Examining the SAA’s Compensation of Damages Policy], Jurist No. 1506 (May 2017), 40.
[xxvi] See Article 99 of the Civil Aeronautics Act for land/air and Article 26, 31 of Maritime Traffic Safety Act.
[xxvii] SAA, art 39.
[xxviii] Ibid art 2(9).
[xxix] Ibid arts 40, 42.
[xxx] Katsuya  40.
[xxxi] See Product Liability Act, Act No. 85 of 1 July 1994 (Japan), art 3 < http://www.japaneselawtranslation.go.jp/law/detail/?vm=04&re=02&id=86&lvm=02> accessed 24 June 2018.
[xxxii] Katsuya  40.
[xxxiv] Hiroto Dogauchi, “Outline of Contract Law in Japan,” Group for the Law concerning International Sales of Goods and International Service Contracts, available at <http://www.law.tohoku.ac.jp/kokusaiB2C/overview/contract.html#chapter4-1> (accessed 16 July 2018).
[xxxv] Act against Delay in Payment of Subcontract Proceeds, Etc. to Subcontrators, as amended in 2005, Act No. 120 of 1956.
[xxxvi] Act on Prohibition of Private Monopolization and Maintenance of Fair Trade (“Antimonopoly Act”), Act No. 54 of April 14, 1947, Article 2-9(v).
[xxxvii] Naikakufu Uchu Kaihatsu Senryaku Suishin Jimukyoku, Uchu Katsudoho Setsumeikai, November 16, 2018.
[xxxviii] United Nations Office for Outer Space Affairs, National Space Law Collection < http://www.unoosa.org/oosa/en/ourwork/spacelaw/nationalspacelaw/index.html> accessed 24 June 2008.
[xxxvix] Irmgard Marboe, Setsuko Aoki and Tare Brisibe, ‘The 2013 Resolution on Recommendations on National Legislation Relevant to the Peaceful Exploration and Use of Outer Space” in Stephan Hobe, Bernhard Schimdt-Tedd, Kai-Uwe Schrogl eds., Cologne Commentary on Space Law Volume III (“CoCoSL”), 483, 506 (2015).
[xl] Ibid, citing Federal Law on the Authorization of Space Activities and the Establishment of National Space Registry (28 December 2011) (Austria) (“Austrian Law”); Act on Space Activities, SFS 1982:963 (18 November 1982) (Sweden) (“Swedish Law”), sec 1 para 2; and Space Activities Act (24 Jan 2007) (The Netherlands) (“Dutch Law”), art 2.
[xli] Dutch Law, art 2.
[xlii] CoCoSL 507.
[xliii] Ibid, citing; Law of the Russian Federation on Space Activities, No. 56630 (20 August 1993), as amended (Russia) (“Russian Law”), art 2, para 1; Law of the Ukraine on Space Activities No. 502/96-VR (15 Nov 1996) (Ukraine), art 1; and Law on Space Activities, No. 528-IV (6 Jan 2012) (Kazakhstan), art 1 no 7.
[xliv] Russian Law, art 2 para 2.
[xlv] CoCoSL 508, citing Act relating to Space Operations, French Law No. 2008-518 of 3 June 2008 (France) (“French Law”), art.1 no.3; Space Affairs Act, Act No. 84 of 1993 (6 Sept 1993) (S Africa) (“S Africa Law”) art 1.
[xlvi] French Law art 3.
[xlvii] S Africa Law art 11 para 1.
[xlviii] CoCoSL 509.
[xlix] Ibid, citing National Space Research and Development Agency Act, Act No. 9A 1255 of 27 August 2010 (Nigeria) (“Nigerian Law”) sec 6, 9; Outer Space Act, 1986 Chapter 38 (18 July 1986), sec 3 para 1 (UK) (“UK Law”); and Act relating to Activities of Launching, Flight Operations or Guidance of Space Objects (17 Sept 2005) (Belgium) (“Belgian Law”) art 2, para 1.
[li] CoCoSL 509, citing Space Ativities Act, Act No. 123 of 1998 (21 Dec 1998) as amended, sec 3 (“Australian Law”); Administrative Edict No. 27 enclosing ‘Regulation on Procedures and Definitions of Necessary Requirements for the Request, Evaluation, Issuance, Follow-up and Supervision of Licenses for Carrying out Launching Space Activities on Brazilian Territory of 20 June 2001’ (“Brazilian Law”); Space Development Promotion Act, Law No. 7538 of 31 May 2005 as amended (S. Korea) (“S. Korean Law”); Norway, Act on launching objects from Norwegian territory into Outer Space, Act No. 38 of 13 June 1969 (“Norwegian Law”); and Commercial Space Launch Act, Public Law 98-575, 51 U.S.C. Ch. 509 (30 Oct 1984) (“US Law”).
[lii] CoCoSL 534.
[lii] US Law, 51 U.S.C. § 50901 et seq.
[liv] Liability Convention, art I(c).
[lv] CoCoSL 531-32.
[lvi] Ibid 530.
[lvii] CoCoSL 530, citing Australian Law Sec 48, paras 1(d), 2; Austrian Law sec 11 para 1; Belgian Law art 15 para 1; French Law, art 14; Dutch Law, sec 12 para 1; S Korean Law, art 3 para 1; Swedish Law sec 6; UK Law sec 10, para1.
[lviii] Ibid, citing Brazilian Law, sec 7; Russian Law, art 25; S African Law, sec 14; and US Law, 51 U.S.C. § 50914.
[lix] CoCoSL 533.
[lx] Ibid 532.