Japanese Premiums and Representations Act (景表法) Violations: What Happens? An Explanation of the Administrative Fine System

When advertisements or products contain false or exaggerated information, or offer overly luxurious prizes, it may constitute a violation of the Japanese Premiums and Representations Act, potentially resulting in penalties. However, many people may not know specifically what actions would constitute a violation or what penalties could be imposed for such violations.

This article will explain the details of violations under the Japanese Premiums and Representations Act, the specifics of the penalties, and key points to avoid violating the law.

What Constitutes a Violation of the Japanese Premiums and Representations Act (Premiums Act)?

The Japanese Premiums and Representations Act is a law created to protect the interests of general consumers. It prohibits the following two practices to ensure that consumers can make informed decisions when purchasing goods or services. Violations occur if these prohibitions are not adhered to.

• Restrictions and Prohibitions on Premiums
• Prohibition of Unfair Representations

Here, we will explain the details of each.

Restrictions and Prohibitions on Prizes and Premiums

The Japanese Premiums and Representations Act restricts and prohibits certain practices regarding prizes and premiums. “Prizes and premiums” refer to goods or money provided in conjunction with the sale of a product as a means to attract customers.

Prizes and giveaways can influence the decision to purchase goods or services. For example, if an excessively luxurious prize is offered, it might lead to the purchase of something overpriced that one would not normally buy or the purchase of an item of poor quality.

To prevent unhealthy competition through prizes and to protect consumers from disadvantage, the Japanese Premiums and Representations Act sets a maximum total value and maximum individual value for prizes and premiums. Failing to adhere to these maximum values constitutes a violation of the Act.

There are two types of prize competitions:

• Open competitions: Sweepstakes that do not require the purchase of a product or service or a visit to a store for entry, open to anyone.
• Closed competitions: Sweepstakes that require the purchase of a product or service for entry.

The Japanese Premiums and Representations Act applies to closed competitions. There are three types of closed competitions: general sweepstakes, joint sweepstakes, and attached premiums, each with its own set maximum individual and total values.

For example, in joint sweepstakes, the maximum individual prize value is set at 300,000 yen, and the total value of prizes is limited to 3% of the expected total sales revenue associated with the sweepstakes.

Related article: What is the Premiums and Representations Act? An Easy-to-Understand Explanation with Examples of Violations and Penalties[ja]

Prohibition of Unfair Representations

The representations of “standards,” “prices,” “quality,” “country of origin,” etc., on products and services have a significant impact on consumer purchasing decisions. If the representations are different from reality or are exaggerated, it could prevent consumers from making informed purchasing decisions.

To avoid such situations, representations that could mislead consumers (unfair representations) are prohibited. There are three types of unfair representations:

• Misleading representations of superiority
• Misleading representations of advantage
• Other potentially misleading representations

“Misleading representations of superiority” refer to representations that suggest a product, service, or standard is “much better (superior)” than it actually is or compared to others. “Misleading representations of advantage” refer to representations about the price and transaction conditions of a product or service that suggest it is “a better deal (advantageous)” than it actually is or compared to others.

To regulate representations that cannot be controlled by just the misleading representations of superiority and advantage, there are “other potentially misleading representations.” The following seven are designated as such:

1. Representations regarding non-juice beverages and similar products
2. Unfair representations regarding the country of origin of a product
3. Unfair representations regarding the cost of consumer credit
4. Representations related to bait advertising in real estate
5. Representations related to bait advertising
6. Unfair representations regarding paid nursing homes
7. Representations that make it difficult for the general consumer to discern that it is a representation made by a business

Citation: Consumer Affairs Agency | Public Notice[ja]

Engaging in these unfair representations could constitute a violation of the Japanese Act against Unjustifiable Premiums and Misleading Representations.

Three Penalties for Violating the Japanese Premiums and Representations Act (Premiums Display Act)

There are three penalties for violations: “Cease and Desist Orders,” “Surcharge Payments,” and “Injunction Requests by Qualified Consumer Organizations.” Additionally, as of the fiscal year 2023 (Reiwa 5), a “Direct Penalty Provision” has been added due to amendments to the Japanese Premiums and Representations Act, which also requires attention. Here, we will explain the details of these three penalties and the direct penalty provision.

Cease and Desist Orders

A Cease and Desist Order is a system where the Commissioner of the Consumer Affairs Agency or the prefectural governors can order businesses to stop unfair displays or provision of premiums. If there is suspicion of a violation, businesses may be asked to provide explanations or submit documents. Examples of Cease and Desist Orders include:

• Making the fact of the violation widely known to the general public
• Taking measures to prevent recurrence
• Ensuring that the violation is not repeated

Even if unfair displays or provision of premiums are stopped, a Cease and Desist Order may still be issued with the aim of preventing recurrence (Article 7, Paragraph 1).

If a Cease and Desist Order is issued, information about the violation will be published on the Consumer Affairs Agency’s website. In some cases, it may also be covered by newspapers or TV news, which could lower the company’s reputation if the fact of making unfair displays becomes widely known.

If a Cease and Desist Order is not followed, imprisonment for up to two years or a fine of up to 3 million yen, or both, may be imposed. Additionally, a fine of up to 300 million yen may be imposed on corporations.

Surcharge Payments

Before the amendment in 2016 (Heisei 28), when a business violated the Japanese Premiums and Representations Act, only a Cease and Desist Order was issued, which was not sufficient to prevent unfair displays. To strengthen the prevention of unfair displays, the Surcharge Payment system was implemented in 2016.

Surcharge Payments are imposed in cases of superior misrepresentation and advantageous misrepresentation, but violations related to unfair premiums are not subject to Surcharge Payments.

Injunction Requests by Qualified Consumer Organizations

“Injunction Requests by Qualified Consumer Organizations” is a system that allows qualified consumer organizations to demand businesses to stop unfair displays. A qualified consumer organization is a corporation certified by the Prime Minister. Injunction requests are made in cases of superior misrepresentation and advantageous misrepresentation. The process for injunction requests is as follows:

1. Consumers provide information to a qualified consumer organization due to consumer damage.
2. Negotiations outside of court by the qualified consumer organization.
3. The qualified consumer organization makes a written preliminary request (injunction request) to the business that made the unfair display.
4. If no improvement is seen from the business, the qualified consumer organization files a lawsuit (injunction request lawsuit).

If business improvements are made during steps 2 and 3, neither an injunction request nor an injunction request lawsuit will be pursued.

Direct Penalty Provision Due to the 2023 Amendment to the Japanese Premiums and Representations Act

Before the 2023 (Reiwa 5) amendment, penalties were imposed only if a business did not comply with a Cease and Desist Order when it violated the Japanese Premiums and Representations Act. With the 2023 amendment, if a business is found to have intentionally made superior or advantageous misrepresentations, it can be fined up to 1 million yen without a Cease and Desist Order being issued (scheduled to be enforced in 2024).

The risk of violating the Japanese Premiums and Representations Act has increased, and the importance of making representations that do not contravene the law and various guidelines has become more significant.

Details on Fines for Violations of the Japanese Premiums and Representations Act (Jōhyōhō)

What circumstances necessitate the payment of fines? Here, we will explain the criteria for fines, how they are calculated, and methods for reduction.

Criteria for Fines

Fines are primarily imposed in cases of superior misrepresentation and advantageous misrepresentation. They apply when the sales from illegal advertisements or services exceed 50 million yen over three years (resulting in a fine of more than 1.5 million yen). (Article 8)

The following cases are exempt from fines:

• When a business unintentionally violates the unfair representation regulations
• When the fine amount is less than 1.5 million yen (sales from the products or services with unfair representation are less than 50 million yen)

Calculation Method

Fines can be calculated as follows:

Fine = Sales from the products or services with unfair representation × 3%

The maximum period for which fines can be imposed is three years.

Following the legal revision in Reiwa 5 (2023), even if a business does not report its sales for the calculation of fines, the Consumer Affairs Agency can now estimate the sales amount. Additionally, for businesses that have been ordered to pay fines within the past ten years, an additional 1.5 times the fine will be imposed. (Scheduled to be enforced in Reiwa 6 (2024))

Since a 3% fine on up to three years of sales can be imposed, it is possible to say that depending on the amount, the fine could pressure the management of a company.

Methods for Reduction

There are cases where fines can be reduced. The methods for reduction are as follows: (Article 9 & Article 10)

• When the fact of the violation is voluntarily reported to the Commissioner of the Consumer Affairs Agency (50% reduction of the fine amount)
• When a refund measure is taken for consumers in accordance with prescribed procedures (reduction by the equivalent amount of the refund)

Refund measure: Providing an amount greater than 3% of the purchase amount to general consumers who have transacted products or services with representations that constitute a violation

Submission of Documents Can Also Exempt from Fines

In cases where superior misrepresentation is suspected, submitting documents that can rationally explain the effects or performance stated in the representation, and if deemed sufficient as a basis, can also exempt from fines (Article 8, Paragraph 3).

The deadline for submitting documents is usually 15 days. If the deadline is missed or the basis is not recognized as proven, it will be considered an unfair representation, and a fine must be paid.

Key Points to Avoid Violating the Japanese Premiums and Representations Act (JPR Act)

Violating the Japanese Premiums and Representations Act is not always a matter of clear intent. In some cases, violations occur simply due to a lack of understanding of the Act.

What measures can be taken to avoid contravening the Japanese Premiums and Representations Act? Here, we will explain the key points to observe to prevent violations.

Prepare Rationally Justifiable Documentation

To avoid violating the Japanese Premiums and Representations Act, it is fundamentally essential not to make false representations, especially concerning the quality and performance of products.

It is crucial to have documentation that can rationally justify claims about quality and performance to avoid unfair representations. According to the Consumer Affairs Agency, the judgment criteria for “rational grounds” require the following two conditions to be met:

1. The submitted documentation must be of content that has been objectively demonstrated.
2. The effects and performance represented must appropriately correspond to the content demonstrated by the submitted documentation.

Reference: Consumer Affairs Agency | Regulation on Unsubstantiated Advertising[ja]

The Consumer Affairs Agency has an information submission form for violations of the Japanese Premiums and Representations Act. If customers using your products or services believe there has been an unfair representation, they may report this to the Consumer Affairs Agency.

If you do not submit documentation supporting your representations within 15 days from the date the request for documentation is delivered, it will be considered an unfair representation. Given the short deadline, it is important to always have documentation ready that can rationally explain the content of your representations.

Reference: Consumer Affairs Agency | Japanese Premiums and Representations Act Violation Suspicion Information Submission Form[ja]

Receive a Legal Check by a Lawyer in Advance

Having a lawyer perform a legal check before releasing advertisements is also an effective measure. There are cases where unfair representations are made unintentionally.

Understanding laws such as the Japanese Premiums and Representations Act and the Pharmaceuticals and Medical Devices Act, as well as various guidelines, is not only difficult but these are frequently amended, making it challenging to grasp all aspects. To ensure peace of mind when advertising, we recommend requesting a pre-check of advertisements and e-commerce site representations by a lawyer with specialized knowledge.

Summary: Consult a Lawyer Before You Violate the Japanese Premiums and Representations Act (JFTC Act)!

Violating the Japanese Premiums and Representations Act can lead to administrative orders and fines. Furthermore, failing to comply with these orders can result in additional penalties.

Even without the intention to deceive or exaggerate in your representations, it is a fact that one can inadvertently violate the law and face penalties. Once a violation becomes public, it is inevitable that the company’s image will suffer.

To avoid violating the Japanese Premiums and Representations Act, it is essential not only to refrain from making false or exaggerated representations but also to prepare supporting documentation for your claims. However, since there is still a risk of violation despite taking great care, it is advisable to have a lawyer check your advertising representations before making them public.

Guidance on Measures by Our Firm

Monolith Law Office is a legal office with extensive experience in both IT, particularly the internet, and law. In recent years, violations of the Japanese Fair Trade Display Act, such as misleading advertisements on the internet, have become a significant issue, and the need for legal checks is increasingly growing. 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. Details are provided in the article below.

Areas of practice at Monolith Law Office: Check of Articles & LPs for Compliance with the Japanese Pharmaceuticals and Medical Devices Act, etc.[ja]