The Tokyo District Court ordered tThe operator of a major peer-to-peer restaurant review site is to pay 38.4 million yen ($286,000) in damages to a Korean barbecue chain.
The court acknowledged that the defendant’s algorithm change on the Tabelog website caused sales to decline at the barbecue chain’s outlets.
“The defendant violated the antimonopoly law by abusing its dominant bargaining position,” presiding judge Fumitaka Hayashi said in a June 16 ruling.
The plaintiff, Tokyo-based Hanryumura Co., sought around 640 million yen in compensation, arguing that its ratings had been unfairly lowered on the grounds that it was a restaurant chain.
Hanryumura said that after the ratings downgrade, his monthly sales fell by 25 million yen, on average, with the number of customers visiting his restaurants via Tabelog dropping by more than 5,000 every month from before.
Kakaku.com Inc., which operates the Tabelog site, appealed the court’s decision, calling it “unfair”.
The decision will likely have wider repercussions in the country, as rating systems using a computer algorithm have also been widely used for hotels, medical facilities, films and real estate.
Kentaro Hirayama, an associate professor at Kyushu University who specializes in antimonopoly law, called the court ruling “significant”.
He praised Hanryumura’s lawsuit to hold Kakaku.com responsible for what he believed to be an opaque use of a computer algorithm.
He said the case should prompt digital platform operators to offer more transparency about their algorithms to ensure the fairness of their rating systems.
Tabelog calls itself “one of Japan’s largest gastronomic sites”, covering more than 820,000 establishments.
Kakaku.com rates restaurants on a scale of 1 to a perfect score of 5 using its own algorithm based on more than 40 million reviews submitted by Internet users.
Hanryumura said scores for its 21 outlets fell an average of 0.2 points in May 2019 from the previous rating, according to court documents. One of the stores recorded a drop of up to 0.45 points.
Hanryumura argued in court that his investigation revealed that the ratings of all chain stores had been downgraded and that Kakaku.com had illegally changed the algorithm to lower the scores of those establishments across the board.
In the decision, the court recognized that Kakaku.com held a dominant position over the plaintiff, because the Tabelog site could influence the commercial fortunes of Hanryumura outlets.
The court said the algorithm change was a ‘disadvantageous operation for the plaintiff’ and that it was a ‘disadvantage which (the plaintiff) could not anticipate’ beforehand given the method of scoring , only a part of which had been published.
Therefore, the defendant must pay part of the lost sales to Hanryumura as compensation, the court said.
The rules and regulations posted by Tabelog state that it is not liable for damages caused to member restaurants.
However, the court determined that the rules and regulations did not apply.
“Kakaku.com made a serious mistake by modifying the algorithm when it knew that modifying it would amount to abusing its dominant commercial position,” the court said.
Tabelog reviews its ratings twice a month.
He said the ratings are not simply calculated by averaging ratings given by customers, but are designed to extend the impact of ratings by people with rich dining experiences.
However, it does not publish most of the details of its scoring methods.
Hanryumura also argued that Kakaku.com lowered the ratings of prod restaurant chain operators to switch to a more expensive contract with the site operator so they could appear more prominently in searches.
Kakaku.com denied this claim, saying the algorithm is applied regardless of the nature of the contracts.
She argued that ratings and rankings do not constitute commercial terms and transactions.
(This story was compiled from reports by Kyota Tanaka and Satoru Eguchi.)