Operating an Online Shop and the Law: The Japanese 'Act against Unjustifiable Premiums and Misleading Representations' & 'Electronic Contract Act'

Online shopping has now become a part of our daily lives. Not only can we purchase items, but anyone can easily set up an online shop. However, various laws are involved in the operation of an online shop. If you do not comply with the relevant laws in terms of display and site structure, you may be deemed illegal. So, what specific laws could be an issue? In this article, we will explain the Japanese Act against Unjustifiable Premiums and Misleading Representations and the Japanese Act on Electronic Contracts.

Laws Pertaining to All Aspects of Online Shops

Japanese Act against Unjustifiable Premiums and Misleading Representations

The Japanese Act against Unjustifiable Premiums and Misleading Representations regulates the false representation of product and service quality, content, price, etc., and limits the maximum amount of premiums to prevent excessive provision. This law aims to protect an environment where consumers can independently and rationally choose better products and services. It is particularly important for companies engaged in BtoC businesses to pay attention to this law.

Quality and price are important criteria for consumers when choosing products or services, so it is essential that these are accurately and clearly displayed. However, if products or services are represented as significantly superior or advantageous than they actually are, it can hinder consumers’ appropriate choices. Therefore, the Act against Unjustifiable Premiums and Misleading Representations prohibits representations that mislead general consumers into believing that the quality or price of a product or service is significantly superior or advantageous than it actually is (unfair representation). Even if there is no intent or negligence on the part of the business operator, measures based on the Act against Unjustifiable Premiums and Misleading Representations may be taken against unfair representations.

Unfair representations can be broadly divided into “Superior Misrepresentation”, “Advantageous Misrepresentation”, and “Other Misleading Representations”.

Superior Misrepresentation

Representations that mislead general consumers into believing that the quality, standards, etc., of a product or service are significantly superior to those of competing businesses, contrary to the actual product or facts, are prohibited as Superior Misrepresentation. For example, this includes cases where domestic beef, which is not a famous domestic brand, is represented as if it were “meat from a famous domestic brand”.

The Consumer Affairs Agency can request a business operator to submit documents that provide a rational basis for the representation if there is a suspicion of Superior Misrepresentation regarding the effects or performance of a product or service. If such documents are not submitted, the representation is considered unfair.

For example, regulations apply to cases where a diet food product was represented as having a slimming effect, as if one could lose weight without dietary restrictions, but there were no documents providing a rational basis for the representation. This is referred to as “unsubstantiated advertising regulation”.

Advantageous Misrepresentation

The Act against Unjustifiable Premiums and Misleading Representations prohibits representations that make the transaction conditions appear significantly advantageous, such as making the price appear significantly lower, as Advantageous Misrepresentation. This includes cases where a product with the same content volume as other companies’ products is represented as having “double the content volume of other companies’ products”. Unfair double pricing representations, such as representing a price as “20% off the regular price” when in fact no such price has been set, also fall under this category and are prohibited.

Other Misleading Representations

Under the Act against Unjustifiable Premiums and Misleading Representations, business operators are prohibited from making representations that may mislead general consumers regarding matters related to the transactions of their products or services, in addition to Superior Misrepresentation and Advantageous Misrepresentation.

“Unfair representations regarding the country of origin of products”, “Unfair representations regarding bait advertising” etc., are defined in six notifications by the Fair Trade Commission.

Also, the Act against Unjustifiable Premiums and Misleading Representations prohibits the provision of excessive premiums.

For example, in a “general lottery” where premiums are provided to users of products or services based on chance or the superiority or inferiority of specific actions, if the transaction amount by lottery is 5,000 yen or more, the maximum amount is 100,000 yen, and the total amount is limited to 2% of the total projected sales related to the lottery.

Japanese Electronic Contract Law (Official Name: Law Concerning Special Provisions of the Civil Code for Electronic Consumer Contracts and Electronic Acceptance Notifications)

The official name of the Electronic Contract Law is the “Law Concerning Special Provisions of the Civil Code for Electronic Consumer Contracts and Electronic Acceptance Notifications”. This law establishes the “Special Exception of the Invalidity System for Errors in Electronic Consumer Contracts” to remedy operational errors that occur during shopping via the internet, and the “Clarification of the Timing of Contract Conclusion in Electronic Commerce (Conversion from Dispatch Principle to Arrival Principle)” to define when a contract is considered concluded.

The Electronic Contract Law consists of two main points.

Remedy for Consumer Operational Errors in Electronic Commerce

In electronic contracts for BtoC (Business-to-Consumer) businesses such as online shopping, there may be cases where the consumer side mistakenly orders products or applies for services that they did not originally intend due to operational errors. For example, there may be cases where a customer intended to order one item from an online shop, but due to an operational error, they ended up ordering eleven items.

In this case, the consumer can utilize Article 95 of the Civil Code, which stipulates “errors”, to assert the invalidity of the contract (assertion of invalidity of the contract due to error) to the shop side.

However, under Article 95 of the Civil Code, there is a possibility that the business side may argue that “the consumer’s operational error is a serious negligence, so the contract is valid” (counterargument that the error invalidity is “serious negligence”).

Thus, there were many cases where troubles developed between businesses and consumers over whether there was “serious negligence” under the Civil Code, but with the enforcement of the Electronic Contract Law, consumer operational errors have been remedied.

For example, if the business side has not taken measures such as preparing a screen where the consumer can finally confirm the application content, such as the product name, quantity, total amount, etc., displayed on the “Order Confirmation Screen” when ordering at an online shop, the expression of intention to apply incorrectly due to the consumer’s operational error will be invalid.

Also, if there is a note like “We consider that you have agreed to the terms of use because you pressed the play button of the video”, and the screen of membership completion is displayed as soon as you press the play button of the video, and you are charged from the site, if the business side has not presented the terms of use and contract content in advance so that they can be understood, the contract will be invalid, and the user can claim that they do not have to pay the usage fee.

Thus, with the enforcement of the Electronic Contract Law, it has become possible to avoid unwanted contracts on the consumer side. Of course, consumers also need to make sure to check.

Conversion of the Timing of Contract Conclusion

In normal contracts, the timing of contract conclusion is the moment when the intention of “application” is dispatched. For example, in online shopping, a sales contract is concluded at the timing when the consumer passes through the final confirmation screen of the application content and presses the “Order” button and the notification is dispatched.

At this time, even if the notification does not reach the applicant due to an error such as a communication failure after pressing the button, the contract is considered to have been concluded.

However, under the Electronic Contract Law, the contract is concluded when the business side checks the content and the notification of order acceptance reaches the consumer, the applicant, for example, when the email information is recorded on the email server and the consumer can check it.

In other words, the timing when the contract is concluded is not when the consumer opens the email, but when the email arrives in the inbox and is in a state where it can be opened.

With the Electronic Contract Law defining the timing of contract conclusion clearly, users are protected from unilateral contracts that they did not intend or agree to, such as “one-click fraud” where it is considered that they contracted by clicking the URL listed on the website or email.

Summary: Consult Lawyers for Legal Considerations in Operating an Online Shop under Japan’s Premiums and Representations Act and Electronic Contract Act

In this article, we have explained the laws related to the operation of online stores, specifically the ‘Japanese Premiums and Representations Act’ and the ‘Japanese Electronic Contract Act’, which are applicable to all aspects of online stores.

According to data updated by the National Consumer Affairs Center of Japan on May 21, 2021, there were approximately 260,000 consultations related to internet shopping in 2020 (excluding consultations via consumer life centers and similar organizations). The majority of these consultations were related to the two laws explained here, so it is necessary to be cautious.

Introduction to Our Firm’s Measures

Monolith Law Firm is a legal office with high expertise in both IT, particularly the Internet, and law. In recent years, online shopping has become an indispensable part of our lives, and the need for legal checks is increasing more and more. Our firm provides solutions related to online shopping.