New, relaxed rules in Japan’s legal world have spurred some local firms to open offices there and might increase profits at firms with already-established Tokyo offices.

Japan’s Ministry of Justice has lifted restrictions that limited the practices of foreign firms and is now allowing them to hire Japanese lawyers as partners or even merge with Japanese law firms. The new rules give Los Angeles law firms the ability to practice Japanese law.

“Before April 1, foreign lawyers were prohibited from hiring a Japanese lawyer,” said Naoki Kawada, director of the Japan practice at Greenberg Traurig LLP, which opened its first Asian office in Tokyo this month. “Now, we can.”

It’s a big move for a country that first opened its doors to foreign law firms in only 1987, a time when the Japanese were investing heavily in the United States. It also makes Japan more open to foreign firms than many of its neighboring countries, such as China, which restricts U.S. firms in their hiring of Chinese lawyers there, and South Korea, which forbids foreign firms from opening offices in the country.

Japan still restricts foreign lawyers from practicing Japanese law, both in transactions and in the courtroom.

In 1994, the laws changed to allow foreign firms to set up joint ventures with Japanese lawyers. But the legally separate distinctions meant that Japanese lawyers could practice Japanese law for their own clients and only share international work and office expenses with their U.S. counterparts, said Greg Nitzkowski, managing partner of Paul Hastings Janofsky & Walker LLP, which formed an alliance with a Japanese law firm, Taiyo Partners.

“Paul Hastings couldn’t do Japanese law work, but we could form associations with Japanese lawyers, and we could reside in the same office space,” he said. “Before April 1 of this year, you’d see two signs: Paul Hastings and Taiyo Partners. But if you walked through the offices, there would be no real distinction.”

Since the rules changed, the firm plans to legally merge with Taiyo Partners, allowing its partners to share in Paul Hastings’ profits. Taiyo Partners currently employs 20 of the 40 lawyers in Paul Hastings’ Tokyo office.

Taiyo Partners’ lawyers are expected to generate more revenue for the firm because they can practice Japanese law. But the profits are unlikely to be that significant given the size of the office and the smaller legal community in Japan, he said.

Japan’s pool of lawyers vastly contrasts from that of the U.S.: About 20,000 lawyers exist in a country with 130 million people. In the state of California alone, which has about 36 million residents, more than 200,000 lawyers were registered with the State Bar.

Many of Japan’s lawyers are in-house counsel and not considered bengoshi, the Japanese term for lawyers; they graduate from law school but do not have the certificate to be considered bengoshi, he said. Fewer lawsuits are filed in Japan, as well.

“The role of the lawyer in Japan is quite a bit different from what we do in the U.S.,” said Scott Haber, a partner and member of the executive committee of Latham & Watkins LLP, which opened a Tokyo office about a decade ago. “Documentation is a lot briefer and shorter than what we’re used to here.”

By contrast, China has a significant amount of legal work in demand but continues to restrict foreign firms in the hiring Chinese lawyers or the practicing of Chinese law. In China, foreign lawyers are limited to advising their business clients on transactions or international issues. Most advise U.S. companies on how to invest or protect their intellectual property in China, while consulting with Chinese companies on U.S. laws, such as how to set up a business and obtain work visas for employees. But they cannot issue legal opinions for investors in public offerings or commercial transactions.

Meanwhile, China has seen prospering investment-backed firms, particularly in Shanghai, demand considerable legal work.

“We see China as a real growth opportunity for the firm,” said Haber of Latham & Watkins, which opened a four-person office in Shanghai this month. “One of our strategic goals is to have offices in all the major financial centers in the world, and we view Shanghai as such.”

In China, the State Council relaxed some of the country’s restrictions on foreign lawyers after the nation joined the World Trade Organization in 2001. Those changes removed a prohibition on foreign law firms from having multiple offices in China.

Since 2002, when the changes became effective, many law firms have opened second offices in mainland China.

Jim Fang, a Los Angeles lawyer at Davis Wright Tremaine, said his firm, which has an office in Shanghai, plans to open another office in China in the next year or two.

“The most popular place would be Beijing because we had our first office in Shanghai,” Fang said. “But right now, we are internally debating whether to open in a neighboring city of Shanghai because the clients over there need us.”