Recent developments would indicate that poison pills in Japan may be scrutinized if not frowned upon by regulators and the country’s judiciary despite a string of recent setbacks for opponents of such takeover defenses.

On Aug. 7, Japan’s Supreme Court backed lower court rulings that sanctioned the use of a pill-style defense used by Tokyo-based condiments maker Bull-Dog Sauce in response to a May bid from activist fund Steel Partners Japan Strategic Fund. The defense specifically targeted Steel Partners, whereby the company was able to issue warrants to selectively dilute the fund’s stake from 10.5 percent to less than 3 percent.

Fund officials, arguing the pill was discriminatory and in contravention to Japanese company law, which requires equal treatment for all shareholders, took their case to court in June.

But while a lower court ruling backed management fully and endorsed management’s contention that Steel was an “abusive bidder,” the recent Supreme Court ruling and a government white paper, also announced Aug. 7, would indicate that policy-setters’ view on pills may be more cautious about snuffing out hostile bids with potent takeover defenses.

Specifically, while the high court did back earlier rulings on BullDog’s pill, it tempered the lower court’s statements to the effect that Steel’s behavior provided strong evidence that is was abusive bidder. The court did not explicitly move to erase the abusive bidder judgment from the lower court record—as Steel head Warren Lichtenstein had demanded—but explicitly refrained from issuing an opinion of its own, according to the Japanese business daily, Nihon Keizai Shimbun.

Were that the end of the story, the stage would be set for the remaining 90 percent of Japanese corporations to strongly consider implementing pills over the coming year, but warning against doing so also are emerging from the government and the Tokyo financial community.

This year’s government white paper on the economy emphasizes the view that "hostile takeovers can boost productivity and corporate value by removing inefficient executives and improving management (the efficiency effect on management)," while criticizing managements opting for entrenching pill defenses.

An August 8 Financial Times article titled "Japanese Companies Warned on Defenses," provided its own translation of a passage, possibly drawn from this segment, characterizing it as "a rare example of the government openly supporting mergers and acquisitions activity."