On January 13, 2023, the Consumer Affairs Agency (CAA) published “the report of the discussion on the Act against Unjustifiable Premiums and Misleading Representations”.  The report was compiled after 10 rounds of discussions starting in March 2022. The report summarized issues to be considered in the future including the “introduction of Commitment Procedure that allows a business operator to apply for a corrective action plan (see *1 for details)” and “increased surcharges (penalties) for repeated violations” and so on.

This time, I would like to provide you with an overview of the background and summary of these discussions.

Background of the discussions

The purpose of the discussions held in March 2022 was as follows.

The Act on Unjustifiable Premiums and Misleading Representations, which aims to ensure an environment in which general consumers can voluntarily and rationally select products and services, was revised in 2014.
The discussions were intended to be held to discuss necessary measures from the viewpoint of securing consumer interests in light of the facts that
-a certain period of time has passed since the enforcement of that revised Act
-changes in the social environment surrounding the Act against Unjustifiable Premiums and Misleading Representations, such as the progress of digitalization

As for changes in the social environment in Japan, the following are to be considered.
-Electronic commerce has become popular due to the progress of digitization
-Advertisements for electronic commerce have become mainstream on the Internet
-International transactions are also becoming popular

In addition, under the recent operation of the Act against Unjustifiable Premiums and Misleading Representations, it is said that a sufficient number of necessary measures has not been taken for the following reasons.
-The introduction of the surcharge system (that imposes economic disadvantages (penalties) on businesses that misrepresent) has increased the time needed to process cases.
-Despite the fact that triggering cases are on the rise, the number of the cases are not on the rise where sufficient penalty measures are taken In addition to these, the existence of “business operators that repeatedly commit violations” was taken up as one of the background factors for the discussions. The following cases are listed as examples of malicious violations.

<Case 1: Misleading representations concerning the quality/standard of a product or service>
A business operator that sells supplements to the general consumers posted a message on its SNS account as if certain effects could be achieved by taking the supplements. However, as a result of the investigation, the business operator did not have any material showing the grounds to support the indication.

Issues to be considered

The report divides the issues to be considered into two categories;
-those that should be addressed early
-those that should be addressed in the medium to long term
and summarizes them as follows.

1. Issues to be addressed early

(1) Promotion of voluntary efforts (see *1 below) by business operators (introduction of Commitment Procedure)

(2) Promotion of refund measures under the surcharge (penalty) system (utilization of electronic money, etc.)

(3) Strengthening deterrence against violations
(Application of increased surcharge (penalty) calculation rate, estimation of sales amount to be used as basis for calculation of surcharge (penalty), etc.)

(4) Utilization of criminal punishment

(5) Responding to internationalization (How to enforce measures against overseas companies and so on)

(6) Reorganization of concepts related to buy-back services

(7) Cooperation with qualified consumer groups

(8) Coordination with other systems in law enforcement

(9) Cooperation with prefectural governments

(10) Burden of proof, etc. in civil proceedings in relation to advertising content that has not been demonstrated

2. Issues to be addressed in the medium to long term

(1) Expansion of the scope of surcharges (penalties)

(2) Obligation to preserve digital representations

(3) Expansion of the scope of restriction to those who do not meet the supply requirements (“goods or services supplied by the business operator”) (4) Dark pattern (Deceptive design pattern)

Of the above, I would like to point out two points that should be noted by business operators: “introduction of Commitment Procedure that allows a business operator to apply for a corrective action plan” and “increased surcharges (penalties) for repeated violations”. The summary of the report is as follows.

(1) Promotion of voluntary efforts by business operators (introduction of Commitment Procedure)

Under the current Act on Unjustifiable Premiums and Misleading Representations (snip) even when a business operator unintentionally misrepresents its product and actively tries to take voluntary actions to improve labeling and so on, if a violation is found, the business operator is subject to an order to take actions, etc. Until now, legal actions against cases of misrepresentation have been taken by a measure order or surcharge payment (penalty) order. However, in the case where business operators are expected to be able to reliably handle the situation sufficiently on their own and so on, encouraging the business operators to take voluntary initiatives will result in faster corrections rather than issuing these orders.

In addition, the report also stated that “the Guidelines should clearly state what to do” in case where the Commitment is not fulfilled.

(3) Strengthening deterrence against violations (Application of increased surcharge (penalty) calculation rate, estimation of sales amount to be used as basis for calculation of surcharge (penalty), etc.)

Some business operators repeatedly commit violations even though they have a history of committing violations of the Act against Unjustifiable Premiums and Misleading Representations in the past and receiving an order to take actions or surcharge payment (penalty) order. Since the current system is not a sufficient deterrent for such operators, it is necessary to strengthen the penalty in response in such cases.

In the Act on Unjustifiable Premiums and Misleading Representations, (snip) an increased calculation rate should be applied to the business operators that repeatedly commit violations in order to increase the deterrent effect.

In addition, with regard to the issue of calculating the surcharge (penalty) due to “the failure of submitting materials by a violating business operator in the investigation by the Fair Trade Commission and so on” the report stated that “provisions should include a reasonable method to estimate the sales amount, etc. subject to surcharge.”

Upcoming schedules

In response to the suggestions in the report, the CAA will work to revise the Act against Unjustifiable Premiums and Misleading Representations. If you are in charge of food labeling and, especially, if you handle health foods and other products with health and functional labels, we hope you find this report useful and helpful. Besides, anyone in charge of checking advertisements should read the “Report of on stealth marketing by the discussion group” published on December 28 last year.

References

Discussions on the Act against Unjustifiable Premiums and Misleading Representations (CAA)

---