Japanese Contract and Anti-Trust Law: A Sociological and Comparative Study (review)

We teach a limited set of skills in law school, a set designed to do one thing: predict what a court will do. Toward that end, we have students parse statutory provisions. We make them read appellate decisions. We then teach them to use the statutes and opinions to gauge how judges will likely decide disputes in the future. For a would-be lawyer, these are crucial skills, and for them clients pay dearly.

From time to time, critics claim we should do more: teach contractual draftsmanship, for example, or negotiation strategies and (perish the thought) interpersonal skills. For better or for worse, however, few of us know how to convey these attributes effectively in a large class, and financial exigencies demand large classes. For better or for worse, the basic law school goal remains teaching students to predict court outcomes.

Whatever merits this statute-and-opinion-based exercise may have, it is not social science. Not being social science, it does not—by its nature, cannot—contribute directly to the basic social scientific inquiry: understanding what people do and why they do it. In the Japanese business context, this means the traditional law school exercise tells us nothing directly about corporate practice: not how Japanese firms negotiate deals, handle disputes, or decide whether to renege or with whom to trade.

To his credit, Willem M. Visser 'T Hooft aspires to social science and styles his study "sociological." Like most of us, however, he does not quite accomplish everything to which he aspires. He focuses his study on franchise termination disputes. Toward that end, he carefully explores the court opinions involved. He explores the statutes and the legal scholarship. He compares the law in Japan to the law in the Netherlands.

To make this study "sociological," Visser 'T Hooft then adds 14 interviews (according to his methodological description, p. 82). Yet not only is this sample small, at least for purposes of studying franchising practice, it is badly biased. Visser 'T Hooft chose the 14 primarily from among people involved in franchise termination court cases. He focused his interviews, in other words, on people involved in franchises that went bad—indeed, went so badly bad that the parties took the disputes to court. To understand business practices more generally, however, he would need to talk to participants in the far more common franchises that went well.

Visser 'T Hooft embeds his analysis in a Japanese scholarship that similarly purports to take a sociological approach (and many of the problems with Visser 'T Hooft's analysis reflect problems in the field more generally). These scholars, he notes, focus "on continuing commercial trade relationships" (p. 1). They agree, he continues, on "the existence of many enduring trade relationships" in Japan and "that continuing transactions are integral to the operation of Japanese-style capitalism" (p. 2).

Ironically, instead of doing interviews, Visser 'T Hooft might have done better to couple simple logic to his traditional legal material. For however indirectly, those "legal" materials potentially do help us understand franchising practice. Rational executives cut their deals with an eye to what happens in court if disaster strikes. In deciding with whom to trade and what contractual clauses to demand, they ask what options courts give them if their partners cheat.

To gauge what to make of Visser 'T Hooft's interviews, therefore, consider what rational business executives anywhere would do. All else equal, they will avoid cheats when they can. Instead, they will try to deal only with those they "trust." If a partner has kept his word in the past, they may reason that he will likely keep it in the future. Assessing him to be a good risk, they may try to do business with him indefinitely. Anticipating his continued cooperation, when hard times hit they may cut him some slack.

Although executives anywhere may cut reliable partners this slack ex post, they will rarely promise to...