I. Introduction
With younger consumers increasingly turning to experiential rather than tangible products, sports marketing, including sponsorships, partnerships and endorsements, is becoming a more and more effective way for companies to market their products and services in Japan.

This emphasis is not limited to private companies; the Japanese government has also made the growth of the sports industry one of its key policies.[1]

A number of legal issues must be taken into consideration when engaging in sports marketing in Japan. One such issue concerns the new regulations on stealth marketing under the Act against Unjustifiable Premiums and Misleading Representations (“Act”), which is generally applicable to marketing and advertisement in Japan.

II. Regulation under the Act against Unjustifiable Premiums and Misleading Representations

The Act regulates certain types of marketing from the perspective of protecting general consumers. One of the primary concerns of the Act is the regulation relating to excessive premiums, which limits the maximum and total amounts of premiums that can be given in connection with a transaction for the provision of goods or services. Another main concern of the Act relates to misrepresentations with respect to the quality of goods and services or transaction terms.

In addition, in December 2022, the Consumer Affairs Agency’s study group on stealth marketing published a report stating that stealth marketing should be regulated under the Act after investigating and examining the actual conditions and practices of stealth marketing. In response, in March 2023, the Consumer Affairs Agency added “representations that are difficult for consumers to identify as representations of a business operator” to the scope of unjust representations regulated under the Act, and this change came into effect on October 1, 2023.

III. What is Stealth Marketing?

“Stealth marketing” generally refers to advertising that is done in such a way that consumers are unaware that it is advertising. For example, if a popular athlete creates a post recommending a sponsor’s product on his or her social media account, but consumers are not aware of the sponsorship arrangement between the athlete and the company, these consumers may incorrectly perceive that the athlete is making a disinterested product recommendation based purely on his or her personal preference. This could unfairly lead to a higher degree of consumers’ trust than in a normal sponsored advertisement.

IV. New Regulation on Stealth Marketing

While stealth marketing is strictly regulated in some jurisdictions, for example in the guidelines issued by the Federal Trade Commission in the United States, prior to the new regulations there was no Japanese law specifically regulating stealth marketing; instead, there were only some voluntary guidelines set by industry groups. Although representations made in stealth marketing could be illegal under the Act if they were found to constitute a misrepresentation of quality or of the terms of the transactions, where such representations misled consumers into believing that the relevant goods or services were significantly superior to, or more advantageous than, their actual condition, these regulations did not specifically address the dangers specific to marketing conducted by “stealth”.

The newly introduced regulation, which was implemented by the cabinet office notification to designate the stealth marketing as one of the misleading representations prohibited under the Act, came into effect on October 1, 2023. The Consumer Affairs Agency has also published guidelines in relation to same. According to these guidelines, the new regulation prohibits representations made by a business operator with respect to transactions involving goods or services supplied by the business operator, where such representations do not make it clear that they are being made by the business operator, thereby making it difficult for consumers to discern that the representations in question are in fact made by the business operator. The overall content of the representation is considered when deciding whether consumers would be misled into believing that the business operator’s representation is disguised as a representation made by a third party, such as an athlete. In order for a representation to be “the representation of the business operator”, it is necessary that the business operator be involved in determining the content of the representation. In other words, if it is objectively the case that the content of a given representation is determined in the sole discretion of a third party, such a representation would not be subject to the regulation.

V. Influence on Sports Marketing in Japan

Marketing through endorsements by athletes is becoming more common in Japan than ever before, as social media has made it possible for individual athletes to easily leverage their influence on fans and consumers in marketing sponsors’ products. If it were to come to light that an athlete was engaged in stealth marketing, the damage to the reputation of both the athlete and the sponsor would be enormous. While this was true even before the introduction of the new regulation on stealth marketing, the impact is now even greater, given that under the new regulation it is clearly illegal conduct. Sponsors need to ensure that the sponsored athletes, as well as the sponsored sports teams and events, properly make the sponsorship relationship clear in their social media posts and other representations. For example, the sponsor’s right under the sponsorship agreement to review an athlete’s posts for sponsor’s products in advance would be an important arrangement in order to avoid inadvertently engaging in stealth marketing.

View original article here.

Author: Shiro Kato

Footnotes

[1] For instance, the “Third Sports Basic Plan” announced by the Ministry of Education, Culture, Sports, Science and Technology in March 2022 aspires to revitalize sports business which was heavily hit by the pandemic.