Legalities of Marketing in Japan: Efforts to Keep It Clean

Various changes have been made in recent years to the Act against Unjustifiable Premiums and Misleading Representations (the “Act”), which is the basic legislation concerning advertising and marketing in Japan. These changes include:

• prohibition of stealth marketing by a Cabinet Office Notification (Cabinet Office Notification No 19, 28 March 2023) under the Act;
• introduction of the affirmative commitment procedure;
• revision of the surcharge system;
• expansion of the fine system;
• introduction of the disclosure request system by qualified consumer organisations; and
• response to internationalisation by amendments of the Act.

Prohibition of stealth marketing

The Act prohibits representations that mislead or may mislead general consumers about the quality, content, price, etc, of products and services.

• Representations that mislead general consumers into believing that the quality of goods or services, standards, or other details are significantly superior to those of competing firms, when in fact they are not (Misleading Representation of Quality, Article 5, Item 1).
• Representations that mislead general consumers into believing that the prices or other terms of transactions of goods or services are significantly more advantageous than those of competing firms, when in fact they are not (Misleading Representation of Advantage, Article 5, Item 2).
• Statements specifically designated as those likely to mislead general consumers (Article 5, Item 3), in addition to Misleading Representations of Quality and Misleading Representations of Advantage.

“Stealth marketing” was not explicitly prohibited under the Act, and frequently is used in social networking services, which has been considered problematic. If an advertisement is made by a business, consumers can recognise that it contains a certain degree of exaggeration, but if they do not know that it is an advertisement, they will mistakenly believe that it is the opinion of a third party other than the business, and will be unable to make a correct judgement. The Consumer Affairs Agency (CAA) took the initiative in studying stealth marketing, and stealth marketing was designated as a misrepresentation in the Cabinet Office Notification (the “Notification”) based on Article 5, Item 3 of the Act.

The Notification covers:

• advertisements that the general public might not recognise as advertisements;
• statements on all media, ie, not only the internet such as SNS postings and review postings, but also TV, newspapers, radio, magazines, etc; and
• only businesses that supply goods and services (advertisers) are considered to be covered by the Notification, and third parties such as influencers who receive requests from companies (advertisers) to advertise or promote their products and services, and advertising companies, are not included in the scope of the description.

If, as a result of an investigation by the CAA, a business is found to have violated the Notification, a cease and desist order will be issued against the business, and the contents of the order will be made public. Examples of the order include:

• an order to discontinue the statement;
• an order to inform the general public of the violation;
• an order to take measures to prevent recurrence; and
• an order not to repeat the violation in the future.

The Commissioner of the CAA determines the standards for the operation of the Notification, and the CAA publishes the Stealth Marketing Notification Guidebook, which explains the contents of the Notification and provides examples of what may or may not be determined to be a business’s statement.

In addition to “representations made by the business itself” and “representations of the business’s products and services made by employees who are deemed to be an integral part of the business or employees of subsidiaries of the business”, cases where the business informs a third party (such as an influencer) of the characteristics of the represented products and the third party then displays content in accordance with such information/representations, and where the business provides products to a third party (such as an influencer) free of charge and asks the third party to post on an SNS, and the third party posts the information in accordance with the business’s intention/policy, are considered as cases where the business has used stealth marketing to promote its products and services.

On the other hand, even if a business is involved in the third party’s statement/display, if the content of the statement/display is deemed to be voluntary by the third party based on objective circumstances, it is not considered to be a statement by the business. Examples include:

• cases where a business offers goods or services to a third party, such as an influencer, free of charge, and asks the influencer to post them on an SNS, but the influencer displays them based on his/her own voluntary intention;
• cases where a business distributes discount coupons as a reward for reviewing its products to purchasers who write reviews of its products and the purchaser voluntarily determines the content of the display; and
• a third party voluntarily makes the display in order to enter a campaign or sweepstake on an SNS.

Whether or not a statement/display constitutes a statement by a business entity is not only a question of whether or not the business entity is involved, but also if the statement/display is made by a third party based on its voluntary intention, per objective circumstances. In particular, it is often difficult to determine under objective circumstances whether an influencer made the representation voluntarily or not, for example, when a product or service is provided free of charge to an influencer and the influencer posts his/her impressions of the product or service.

When using influencers, it is important to indicate “advertisement”, “sponsored”, or “promotion” so that general consumers can clearly understand that the indication is made by the business.

In addition, since businesses are obliged under the Act to establish a system to prevent misleading representations, businesses must pay attention not only to representations made by the business itself, but also to representations made by influencers and affiliates when they have third parties show/display their representations.

Amendments of the Act

The Act to Amend the Act against Unjustifiable Premiums and Misleading Representations (the “Amended Act”) was enacted on 10 May 2023, promulgated on 17 May 2023, and will come into effect on a date not exceeding one year and six months from the date of promulgation (November 2024).

The previous amendment of the Act was passed and enforced in 2014, but it was supposed to be reviewed with necessary measures taken after five years from the enforcement. In addition, social conditions/environment have changed significantly between the time when the Act was originally enacted (1957) and the present; eg, with e-commerce flourishing due to the progress of digitalisation, advertising displays by businesses now mainly conducted via the internet, and international transactions also becoming more active. In order to examine and discuss the legal system in accordance with the changes in society, a committee was established to study the ideal legal system, and its report was submitted on 13 January 2023. The Amended Act was enacted based on the recommendations of this report.

In order to promote voluntary efforts by business operators, the Amended Act:

• introduces a firm commitment procedure; and
• adds provisions to make refund measures in the surcharge system more flexible.

The surcharge system was introduced in the Act in April 2016, and while the number of cases of violation of the Act against Misleading Representation of Quality and Misleading Representation of Advantage has been increasing, the investigation of cases has been prolonged and the processing has not kept pace. The goal is not only to issue a measure order or surcharge payment order by the CAA, but also to work on early correction of misleading representation/labelling through voluntary efforts by business operators. The affirmative commitment procedure is a system under which a business operator that has made a misleading representation such as a Misleading Representation of Quality or Misleading Representation of Advantage applies for a corrective action plan and, upon approval by the Prime Minister, is exempted from the application of a measure order or surcharge payment order with respect to the conduct in question. The system of assurance was introduced in the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (Anti-monopoly Act) in 2008, and the introduction of a system referring to the Anti-monopoly Act in the Amended Act is aimed at the early correction of cases of misleading representation/labelling.

In order to promote/accelerate the recovery of damage caused to general consumers by misleading representations, the Act also allows for a reduction in the amount of the surcharge or the refusal to order the payment of the surcharge if the business operator takes refund measures in accordance with the prescribed procedures. However, since the current refund measures are rarely utilised, the Amended Act aims to promote the use of refund measures by allowing third-party prepaid payment instruments such as electronic money as well as monetary refunds to general consumers.

In addition, in order to achieve strict and smooth law enforcement, the Amended Act revises the surcharge system, expands penalties, and establishes provisions to respond to the development of internationalisation.

With regard to surcharges, the Amended Act increased the amount of the surcharge by 1.5 times for businesses that have received a surcharge payment order within ten years prior to the violation. In addition, there was a problem in the investigation of surcharges that there were businesses that cannot properly report the amount of sales, making it impossible to issue a surcharge order promptly. A provision was established to allow estimation of the amount of sales at organisations/businesses that are unable to ascertain the facts that should serve as the basis for the calculation of the surcharge.

In cases of Misleading Representations of Quality and/or Misleading Representations of Advantage, there are malicious operators who are aware that there is a discrepancy between the representations and actual results, but tolerate such discrepancy and commit violations. A fine of up to JPY1 million will be imposed on those who make misleading representations, while a fine of up to JPY300 million will be imposed on corporations.

Since the Act does not provide sufficient provisions of delivery orders for measures (such as cease and desist orders), if the subject is a foreign business and has neither a branch nor a representative in Japan, a cease and desist order effectively cannot be issued and/or delivered to that business, so the service system was improved and expanded. In addition, a system for providing information to foreign enforcement authorities was established.

A qualified consumer organisation is allowed to request a business operator to disclose materials showing reasonable grounds to support the representations made by the business operator, and the business operator is obliged to make efforts to comply with the request.

The following issues were reported by the Study Group on the Act against Preventing Unjustifiable Premiums and Misleading Representations as issues to be considered in the mid- to long-term:

• expansion of the scope of surcharges;
• obligation to preserve digital representations;
• expansion of the scope of regulation of those who do not meet the “supply requirement” that their products or services be “related to goods or services that they supply” in order to apply the Act;
• expansion of the scope of regulation of those who do not meet the “supply requirement”; and
• dark patterns (ie, those that are designed to induce consumers to make unfavourable judgements and decisions without being aware of it, for example, by web design).

Regarding dark patterns, the OECD Consumer Policy Committee has provided a working definition of dark commercial patterns, which requires special attention.