From October 2023 (Reiwa 5), 'Advertising' Disclosure Becomes Mandatory. Explanation of the Operational Standards for Stealth Marketing Regulations

Stealth marketing, or “stema” in Japanese, refers to advertisements that are disguised as non-advertisements. This includes instances where celebrities or influencers promote or introduce products or services under the guise of being neutral third parties, or when businesses that receive compensation from advertisers post favorable word-of-mouth reviews or comments while pretending to be ordinary consumers.

From October 2023 (Reiwa 5), regulations based on the Japanese Act against Unjustifiable Premiums and Misleading Representations will be implemented against stealth marketing. Those who violate these regulations will be subjected to orders for corrective measures.

In this article, we will explain the details of the strengthened regulations on stealth marketing that will be implemented from October 2023 (Reiwa 5).

Past Cases of Stealth Marketing

Until now, there have been no clear regulations regarding stealth marketing, but it has been criticized each time it comes to light.

There are two main types of stealth marketing:

• Impersonation type (fake posts): Cases where a business impersonates a general consumer and posts favorable reviews or articles (this also includes cases where they post negative reviews about competing products or services).
• Influencer type: Cases where celebrities or influencers who have been asked to advertise a product by an advertiser introduce the product or service without revealing that it is an advertisement. This is also referred to as “concealed profit provision type”.

In either case, it is considered stealth marketing to advertise without letting consumers realize that it is an advertisement. Note that whether or not there is a reward is irrelevant. Even if the advertisement was made without compensation, if it was an “advertisement conducted in secret”, it would be considered “stealth marketing”, so be careful.

So, what kind of cases are considered stealth marketing? Let’s start by introducing some past examples.

Fake Posts on Tabelog and Yahoo! Chiebukuro

“Tabelog” is a ranking site where you can post scores and reviews of restaurants. In 2011, it was discovered that there were several businesses that received compensation from restaurants and posted favorable reviews on Tabelog. This can be said to be a typical example of the impersonation type.

In response to this, the company that operates Tabelog has taken measures against fake businesses, such as verifying by mobile phone number and setting up a reporting window for fake businesses.

It has also been found that there were similar fake posts from businesses on the Q&A site “Yahoo! Chiebukuro” (for example, in response to a question like “What is your recommended ramen shop near ○○ station?”, a business that has received compensation from a restaurant posts the name of that restaurant).

Penioku Incident

In 2012, it was discovered that a celebrity who wrote on their blog that they had “won a product at a very low price on an auction site” had not actually won the auction on the site, but had received a reward from an acquaintance and wrote the requested content on their blog.

The operator of this penny auction was arrested for fraudulent acts such as swindling fees, and the celebrities involved received severe backlash.

Many people may have learned the word “stealth marketing” from this incident.

“Frozen 2” Incident

In 2019, Walt Disney Japan apologized for having creators post their impressions of “Frozen 2” on SNS without clearly indicating that it was PR.

Walt Disney Japan explained that they had planned to have the creators indicate that it was PR, but the communication was not through.

Reference: Walt Disney Japan Co., Ltd. | Apology regarding the “Frozen 2” impression comic project[jn]

Announcer’s Beauty Salon Stealth Marketing Suspicion

In 2021, it was reported in a weekly magazine that seven announcers from Fuji TV had their hair cut at a famous beauty salon without paying, in exchange for posting photos after the cut on SNS, and they were criticized for possibly being stealth marketing.

Fuji TV commented that it “does not fall under stealth marketing”, but it sparked a debate as to whether it was a violation of ethics.

Reference: Asahi Shimbun | Fuji female announcer’s beauty salon SNS ‘Not stealth marketing but rule violation[jn]’

Overview of Stealth Marketing Regulations

As mentioned above, stealth marketing has repeatedly become a social issue. Each time, operators of word-of-mouth sites and social networking services have voluntarily regulated it. Until now, there were no laws that specifically prohibited stealth marketing. As a result, many companies have used stealth marketing as part of their advertising strategies, and consumers have continuously fallen victim to deceptive practices. It was also problematic that Japan was the only country among the OECD member countries (top 9 countries in terms of nominal GDP) without regulations against stealth marketing.

Therefore, the Consumer Affairs Agency held an expert panel to discuss the reality and regulation of stealth marketing, and the panel compiled a proposal calling for stricter regulations. Based on this proposal, the Consumer Affairs Agency proceeded to establish operational standards, and it was announced on March 28, 2023 (Reiwa 5) that stealth marketing would be subject to unfair labeling under the Japanese Premiums and Representations Act.

Reference: Consumer Affairs Agency｜’Operational Standards for Representations that are Difficult for General Consumers to Identify as Representations by Businesses[jn]’

The stealth marketing regulations will be enforced from October 2023 (Reiwa 5). From October 2023 (Reiwa 5) onwards, advertisements that do not clearly state that they are advertisements will be considered stealth marketing and will be subject to unfair labeling under the Japanese Premiums and Representations Act. As a result, those who fall under unfair labeling will be subject to orders for measures and public announcements.

Note that the target of stealth marketing regulations is the business operator (advertiser), not the influencers who actually post reviews or introduce products or services.

Taro Kono, Minister in charge of Consumer Affairs and Food Safety, has stated, “There are criticisms that the regulations are lax compared to other countries, such as influencers not being subject to regulation. If there are problems that cannot be solved by implementing stealth marketing regulations, we would like to review them.”

Unfair Representation under the Japanese Premiums and Representations Act

Unfair representation under the Japanese Premiums and Representations Act is categorized into three types:

1. Superiority Misrepresentation: Misrepresentation about the content of goods or services
2. Advantageous Misrepresentation: Misrepresentation about the price and other transaction conditions of goods or services
3. Any representation that may cause general consumers to misunderstand matters related to the transaction of goods or services, as designated by the Prime Minister of Japan

Examples of Superiority Misrepresentation include:

• Labeling a product as Matsusaka beef when it is not
• Advertising a supplement as “lose weight just by drinking” when it has no effect

Superiority Misrepresentation refers to representations that mislead consumers into believing that the actual product or service is “better” than it really is.

Examples of Advantageous Misrepresentation include:

• Advertising a product as “half price” when it is not half of the regular selling price
• Advertising a product as “only now for XX yen!” when it is always sold at that price

Advantageous Misrepresentation refers to representations that mislead consumers into believing that the deal is “more advantageous” than it actually is.

Stealth marketing (stema) was not regulated unless it fell under Superiority Misrepresentation or Advantageous Misrepresentation. However, it has now been designated under the category “as designated by the Prime Minister of Japan”, and the act of stealth marketing itself has become regulated.

Guidelines for Stealth Marketing Regulations

The Consumer Affairs Agency (CAA) announced the operational guidelines for stealth marketing regulations on March 28, 2023 (Reiwa 5).

Reference: Consumer Affairs Agency｜Operational Guidelines for ‘Displays that are difficult for general consumers to identify as a business operator’s display[jn]’

According to the guidelines, the Japanese Premiums and Representations Act defines stealth marketing as “a display made by a business operator about the transactions of goods or services they supply, which is considered difficult for general consumers to identify as such.” In summary, if the following two conditions are met, it may be considered stealth marketing:

1. The display is made in relation to the transaction of goods or services, and the entity making the display is the business operator providing the goods or services themselves.
2. It is difficult for general consumers to identify that the display is made by the business operator.

Let’s explain each of these in detail.

The entity making the display is the business operator providing the goods or services themselves

As previously mentioned, there are two types of stealth marketing. The amendment regulates according to these two types.

1. Displays made by the business operator themselves

For example, a business operator may disguise themselves as a general consumer and write reviews for a restaurant. In this case, it can be clearly stated that this is a “business operator’s display.”

2. Displays made by a third party at the request of the business operator

For instance, on social media, a business operator may ask an influencer to post positive reviews or negative reviews about competing products without revealing that it is advertising. In this case too, it is clear that the business operator was involved in deciding the content of the display, as they requested specific content and paid a fee.

The guidelines state that a case is considered “the business operator was involved in deciding the content of a third party’s review, etc.” based on objective circumstances, and it is not considered a display made by the third party’s independent will.

Reference: Consumer Affairs Agency｜Operational Guidelines for ‘Displays that are difficult for general consumers to identify as a business operator’s display[jn]’

In other words, even if there is no clear instruction or request, if there is a relationship between the business operator and the third party that allows the business operator to influence the third party’s reviews, etc., and it cannot be considered a post made by the third party’s independent will, it may be subject to stealth marketing regulations.

This judgment is made comprehensively based on the relationship between the business operator and the third party.

It is difficult for general consumers to identify that the display is made by the business operator

According to the guidelines, if it is not clearly understood by general consumers that the display is an advertisement by the business operator when looking at the entire content of the display, it is considered stealth marketing. Cases where it is not stated at all that it is an advertisement, or even if it is stated, it is difficult to understand, are considered stealth marketing.

“Cases where it is not stated at all that it is an advertisement” include cases where, despite actually receiving a request from an advertiser, a positive review is posted as if it were just a general customer without stating this fact.

“Cases where it is difficult to understand that it is an advertisement even if it is stated” include, for example:

• It is stated that it is an “advertisement,” but it is also stated that it is “an opinion as a third party,” making it difficult to understand whether it is an advertisement or not.
• The text stating “advertisement” is very small, faint, long, or located at the end, making it difficult for consumers to recognize it as an advertisement.
• In the case of a video, the word “advertisement” is displayed for a very short time that consumers cannot recognize, or it is displayed only in the middle or at the end of the video.
• In the case of SNS, words such as “advertisement” and “PR” are hidden among a large number of hashtags.

It can be said that if a general consumer looks at it and cannot recognize it as an advertisement, it is likely to be judged as stealth marketing.

Penalties for Violating Stealth Marketing Regulations

If you violate stealth marketing regulations, you will be in violation of the unfair display provisions of the Japanese Premiums and Representations Act, and you will be issued an order for measures.

In an order for measures, you are often ordered to:

• Notify general consumers of the misunderstanding
• Develop measures to prevent recurrence
• Not to commit similar violations in the future

If you do not stop stealth marketing, you will be ordered to stop it.

If you receive an order for measures, the name of the business operator who requested the advertisement will be published on the websites of the Consumer Affairs Agency and prefectures. This publication alone is not considered to have “notified general consumers of the misunderstanding,” so the business operator needs to publish the fact that they have made an unfair display under the Japanese Premiums and Representations Act in a daily newspaper and thoroughly publicize it. If you violate the order for measures, you will be sentenced to imprisonment for up to two years or a fine of up to 3 million yen.

In addition, not only can the business operator be fined up to 300 million yen, but the representative of the corporation can also be fined up to 3 million yen.

If you make a superior misrepresentation or advantageous misrepresentation, you may be fined, but in the case of stealth marketing regulations, no fine is imposed.

Points for Companies to Note with the Implementation of Stealth Marketing Regulations

Stealth marketing regulations will be implemented from October 1, 2023 (Reiwa 5). Therefore, it is necessary to check whether your company’s advertisements fall under stealth marketing before this date. If there is a possibility that they do, you need to stop the advertisement or make modifications such as clearly stating that it is an advertisement.

As stated in the “Operational Standards for Stealth Marketing Regulations” above, even if there is no explicit request between the advertiser and the poster, if the poster is in a relationship where they can receive some kind of compensation, it may not be recognized as a post based on the poster’s voluntary intention, and it may be subject to stealth marketing regulations. Therefore, caution is required.

If you violate the stealth marketing regulations, an order for measures will be issued and it will be reported in the media. In this case, not only will the company’s image deteriorate, but the financial loss associated with stopping or modifying the advertisement will also increase.

To avoid such a situation, it is necessary to create advertisements that do not fall under stealth marketing based on the operational standards published by the Consumer Affairs Agency. However, if it is difficult to understand what kind of description or display does not fall under stealth marketing, it is recommended to consult with experts such as lawyers.

Summary: Consult a Lawyer for Compliance with Strengthened Stealth Marketing Regulations

If a business violates the stealth marketing regulations, it may be subject to an enforcement order and have its business name disclosed.

If subjected to an enforcement order, the company’s reputation and image could be significantly damaged. It is necessary to consider advertising and promotional methods that do not violate stealth marketing regulations, while referring to the operational standards published by the Consumer Affairs Agency (Japanese Consumer Affairs Agency).

If you have any questions or concerns about stealth marketing regulations, please consult a lawyer who is familiar with the Act against Unjustifiable Premiums and Misleading Representations (Japanese Act against Unjustifiable Premiums and Misleading Representations).

Our Firm’s Approach

Monolith Law Office is a legal practice with extensive experience in both IT, particularly the internet, and law. In recent years, violations of the Japanese Premiums and Representations Act, such as stealth marketing, have become a significant issue, and the need for legal checks is increasingly important. Our firm analyzes the legal risks associated with businesses that have already started or are about to start, based on various legal regulations, and aims to legalize them as much as possible without stopping the business.