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Thursday, April 5, 2012

Foreign law firms aim for equal treatment

Revisions to expansion rules might be too little, too late


Staff writer

While major foreign law firms often have wide networks of offices that span the globe, those firms are allowed only one office in Japan because of a law that they say has blocked them from expanding in the world's third-largest economy.

Moves to change the law, which limits foreign legal firms' operations, have gotten under way with last month's submission of a government-sponsored reform bill. But some major firms say the revisions won't do enough to make it easier for them to change their status.

Baker & McKenzie has 69 offices in 42 countries, including the United States and China. The firm even has two offices in Vietnam — Hanoi and Ho Chi Minh City — but just one office in Japan, in Tokyo.

"Even Vietnam has two offices," said Yoshiaki Muto, a partner at Baker & McKenzie GJBJ Tokyo Aoyama Aoki Koma Law Office, a Japan's arm of Baker & McKenzie. "Any service industry should be located near clients. We get complaints from clients who want more meetings with us all the time.

"It would make a lot of sense to have an office in Osaka," he added.

Foreign law firms face tighter regulations here because they employ attorneys without Japanese qualifications who are not allowed to provide legal services involving Japanese laws.

Their main clients are Japanese firms seeking advice on foreign laws when doing businesses overseas, or foreign firms doing business in Japan for which they consign services to lawyers with Japanese qualifications.

The Attorney Act stipulates that only incorporated entities can open more than one law office in Japan. Domestic law firms can be incorporated, but foreign law firms currently cannot.

Both the Attorney Act and the law regulating lawyers with foreign qualifications do not differentiate a lawyer from a group of lawyers, and unincorporated law firms are groups of individual entrepreneurial lawyers who share profit. Therefore, the Justice Ministry fears lawyers may open a second office where no lawyers are assigned.

The bill, drafted by the Justice Ministry, revises the Special Measures Law Concerning the Handling of Legal Services by Foreign Lawyers to allow foreign law firms to set up more than one office in the country, in a move to treat them the same way as Japanese firms. The ministry hopes the bill will be passed during the current Diet session, which ends in June.

While it should be a positive move for foreign law firms whose sole Japanese offices are mainly in Tokyo, some of them, including Baker & McKenzie and White & Case LLP, have said they will not open second offices because the bill won't make it easy enough for them to do so.

Both of the firms have said they have no plans to open second offices because becoming an incorporated entity remains too troublesome.

Foreign law firms are currently not incorporated entities, but rather "kumiai," or cooperatives of individual entrepreneurial lawyers.

"The change in the law is not particularly helpful to us because it requires us to reorganize to be a 'hojin' (an incorporated entity)," White & Case Executive Partner Brian Strawn told The Japan Times.

To become an incorporated entity in Japan, White & Case would need to change the way it pays taxes, which would affect the way its global partners pay taxes in the countries where they reside, Strawn said.

White & Case would have to reorganize its entire global network, Strawn said, and ultimately the infeasibility of becoming incorporated would outweigh any benefits of being close to clients.

Despite such pleas, the Justice Ministry has remained steadfast that unincorporated law firms will not be allowed to open more than one office.

Yumiko Ichige, a lawyer and deputy secretary general of the Japan Federation of Bar Associations, said the federation supports the idea of allowing foreign law firms to open more than one office but would oppose allowing unincorporated law firms to do so.

The purpose of the bill currently before the Diet is to help foreign firms — law firms whose partners are lawyers without Japanese qualifications but with foreign qualifications — receive the same treatment as Japanese law firms.

"We have received lots of complaints, especially from U.S.-based law firms, about unequal treatment," said Masaharu Nakanishi of the Judicial System Department at the Justice Ministry.

But Baker & McKenzie has another reason why it will not open the second office — the bill does not allow for a "mixed incorporation," or a corporation whose partners are lawyers with Japanese qualifications and others with foreign qualifications.

Baker & McKenzie in Tokyo, which is currently a mixed cooperative, would have to separate its name, which mixes foreign and Japanese law firm names, in order to meet a prerequisite of becoming an incorporated entity, but Muto said the firm's entire name has brand value among Japanese clients.

Mixed corporations are banned because the Justice Ministry wants to regulate lawyers without Japanese qualifications so that they do not provide clients with legal advice on Japanese laws.

On the other hand, Morrison Foerster LLP, another major foreign law firm, disagrees with Baker & McKenzie's assessment and is willing to become an incorporated entity with the eventual goal of opening an office in Osaka.

"We are certainly looking at an option of opening an office in Osaka," Managing Partner Ken Siegel said. Becoming an incorporated entity is "not a huge change" for the organization, he added.



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