Achievements of the ZOZO legal team in 2020

Achievements of the ZOZO legal team in 2020 published for the ALB legal team competition:

1. The legal team quickly and efficiently contributes to the implementation of technologies utilizing image analysis and image synthesis in fashion e-commerce.

ZOZO Inc ("ZOZO"), which has the largest fashion e-commerce business in Japan, has implemented a new shopping recommendation services based on (i) analysis of coordinated images and (ii) virtual models by image synthesis as an integral part of its business expansion. The legal team supported new domestic and international transactions, handling of privacy information issues, and new advertisement. These initiatives raise many novel legal issues that the legal team addresses in a practical and business-oriented manner.

Implementation of a new shopping recommendation function that automatically analyzes coordinated images (of the user) posted on the ZOZO-operating fashion SNS (“WEAR”) to analyze fashion trends (2020, https://press-tech.zozo.com/entry/ 20200928_wear).

In the traditional shopping experience, shoppers visit actual stores and store staff advise shoppers based on the staff’s first impressions. On the other hand, ZOZO analyzes fashion trends based on analysis of images posted by WEAR users and analyzes each user's fashion orientation based on the user’s accumulated image data. to provide each user with tailored shopping recommendations. These processes raise novel and complex privacy issues, which we addressed through the elaboration of innovative privacy policies and terms of use. We also provide legal support to improve the UX (user smartphone experience) so that users overcome privacy concerns to embrace WEAR and post their fashion coordinate images.

ZOZO also embarked on the development of 3D (three-dimension) virtual models using image synthesis, such as deep-fake technology (combining multiple person’s images - development to be completed in 2021,) to provide virtual models with realistic body shapes that match users’ preferences, in order to provide safe and quick dressing suggestions, even in the current COVID-19 situation. ZOZO developed realistic and familiar body shapes that differ from those of supermodels so that they will be more familiar and well-liked by our customers. The legal team supported this initiative to ensure that portrait rights and publicity rights of the sources of virtual models are not violated. Although virtual models can act and express their opinions within the virtual space, the legal team also advised how to fix the persona of the virtual models (personality, background, thoughts, family, etc.) to avoid problems relating to offensive speech and gender issues.

2. The legal team supported the development and commercialization of technology that encourages consumers to make purchase decisions based on body and color measurements for apparel shopping through smartphone applications. The legal team handled technology development contracts, privacy data acquisition methods, offensive speech issues, and unique advertising expressions.

The following smartphone applications and accessories for body measurements and skin tone measurement were developed in 2020. The legal team vetted the myriad complicated legal issues intertwined with the applications and accessories and contributed to the launch on schedule.

- ZOZOSUIT 2 for full-body measurement (for apparel, https://corp.zozo.com/en/news/20201029-6375/

- ZOZOMAT for foot measurement (for shoes, https://corp.zozo.com/en/news/20200312-5017/)

- ZOZOGLASS for skin tone measurement (cosmetics, development and preparation in 2020, https://corp.zozo.com/en/news/20210129-6470/)

Full-body measurement:

ZOZO collects information about users’ body dimensions through measurement tools and combines this information with users’ personal preferences based on purchasing data and leverages these data to engage in targeted advertising. ZOZO’s measurement tool is critical for e-commerce in the clothing industry, since it allows users to select proper-fitting clothes and shoes with confidence through their smartphones despite the impossibility of physical fittings. This marketing strategy cannot succeed, however, without a thorough legal analysis of privacy-related issues implicated by this marketing strategy and a sound legal strategy for ensuring legal compliance with a significant number of laws and regulations. The legal team guided the business team through all legal aspects of this marketing strategy.

Skin tone measurement and foot measurement:

The application’s UI (user interface) and advertisements seek to engage in fluid and natural expressions in order to intuitively convey skin tone, but this is fraught territory, touching on race and physical characteristics. And the Japanese language has particular words relating to skin color and foot shape that may be controversial in a multicultural society but that are not viewed as such in Japan, which has historically been relatively homogenous. ZOZO could have avoided all controversy by using strictly defined expressions or only numerical values and graphs, but doing so may make it difficult for users to understand the message intuitively and may weaken the appeal for shopping. Therefore, ZOZO decided to use natural, easy-to-understand expressions in the application, and the legal team supported this effort in advising on appropriate phrases, while discussing with outside experts to avoid problems from the legal and cultural/societal perspectives.

Although the business model involved difficult legal issues, such as obtaining privacy information and ensuring security levels, we succeeded in providing practical legal advice that enabled the launch to be completed on time.

3. The legal team succeeded in responding flexibly to dramatic changes in the environment using digital tools, and improving the working environment for team members. ZOZO’s speed of response to environmental changes is considered within the top 5% of companies located in Japan.

In response to the spread of the COVID-19 disaster, the company as a whole and the Legal Department implemented full telecommuting ahead of most Japanese companies in April 2020.

The Board of Directors and management meetings went fully-online in April 2020, ahead of most Japanese companies. The Legal Department, as the administration office of the Board of Directors, actively promoted operational improvements such as preparation of materials optimized for online use and discussion-oriented progress. ZOZO’s corporate culture emphasized face-to-face conversations and meetings, but in response to the COVID-19 disaster, the policy was drastically changed in order to ensure the safety of all staff members. On the other hand, at the meetings of the Board of Directors, executives need to focus on important agenda items and issues and discuss them in depth, so the legal team led the company in devising operational measures – web-based meeting optimization - such as narrowing down the main points of materials, avoiding the use of multiple files, and creating materials that can be understood by viewing them in order from the beginning on a screen.

Legal technology will also be introduced and selected in a wide range in the spirit of trial and error. The legal team implemented and tried out several legal technologies, including machine review of contract drafts, a contract draft management system, and a digital storage of legal books.

Based on examination of several legal technology services, we decided that in-house development was best for legal consultation and case management. Before the development there was a wide range of legal consultation options, including e-mail, chat tools (Skype, Slack), face-to-face and verbal. Since we could not find a good legal technology that could be easily introduced without disrupting ZOZO's operations, we switched to in-house development and developed an in-house application for laptops and smartphones in collaboration with in-house engineers. The legal department defined the requirements for connecting with Slack and email and automatically creating a consultation list using Google Spreadsheet, and implemented the application in 2020.

The legal team also contributed to introducing an electronic contract system for all ZOZO contracts in May 2020. In the traditional flow of contracts in Japan, a company seal was physically stored in a safe in the office, and the person in charge had to come to the office to affix the seal. In addition, there was a labor-intensive and unproductive operation of sending the stamped contract to the counterparty by mail, attaching a control number to the returned original contract, and storing it in the company. In this respect, ZOZO took the opportunity of the COVID-19 disaster to introduce an electronic contract execution system and electronic storage of completed contracts at an early stage (i.e., May 2020) to solve the problem and ensure the safety of its members.

4. PMI (post-merger integration) to maintain the independence of acquired company after M&A - Introduction of advanced governance based on Japanese corporate culture.

In 2019, Z Holdings Corporation (formerly known as Yahoo Japan), an e-commerce and media IT company, acquired a majority stake in ZOZO through a tender offer. ZOZO maintained its listing on the Tokyo Stock Exchange after this transaction.

Under the environment of continuous parent-subsidiary listing, which is a unique corporate governance practice in Japan, in order to protect the minority shareholders of ZOZO, a listed subsidiary, ZOZO established a new set of internal regulation to ensure fair transactions between parent and subsidiary group companies as one of the fair governance methods. These governance rules are considered to be more advanced, strict, and detailed than those of typical listed companies and groups. The complexity and sophistication of these rules, however, can present problems if they are understood only by the legal department, as they would interfere with the ability of the business units to make decisions and launch products as planned. Therefore, we created a tool to allow the business units to navigate the rules easily.

We adopted an agile approach (an engineering method to create a framework first, and then improve it through operation) to the introduction and operation of these regulations. The rules were established in the first half of 2020 with the aim of early introduction, and thereafter, the rules are being revised every few months to elaborate and streamline them while monitoring their operational status. In order to prevent the frequent revision and notification of internal regulations from causing dissatisfaction or frustration based on misunderstandings among executives, the legal department (administration office of the board of directors) obtained approval from executives to proceed with the regulations in an agile manner when they were first established.

As a result, fairness in inter-group transactions is ensured. Store openings on the parent company's platform and ad placements by group companies are carried out appropriately and without slowing down the pace of business, thereby contributing to business expansion.

5. Other Achievements

The company's fashion e-commerce business has expanded its GMV (Gross Merchandise Volume, i.e., annual distribution volume in e-commerce industry) from 3 billion USD to nearly 4 billion USD while maintaining its high fashion branding. The legal team contributed to this growth by supporting the management team and business units with the activities described in this submission.

The legal team is proactively promoting diversity. A majority of our team members are women and our team members come from varied backgrounds and age groups. It is perhaps our engrained culture of embracing challenge that attracts such a diverse, entrepreneurial, and outstanding team.

The legal team is also proactive in working with overseas and domestic law firms. By consulting with them in the early stages and actively sharing background information, the team has built a relationship that makes it easier for outside counsels to provide effective legal advice that is tailored to our actual situation.

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