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Policy Proposals  Business Law Opinion on introduction of surcharge on misrepresentations

April 15, 2014


In response to a series of improper food labeling and misrepresentation cases that occurred last year, the Japanese government is considering to introduce a system to impose surcharges over violation of the Act against Unjustifiable Premiums and Misleading Representations, a law aimed at preventing the misleading representation of products and services.

The business community must work to label products and services properly and place top priority on gaining the trust of consumers. To that end, the government should expedite compiling easy-to-understand guidelines that would help business with proper representations of products and services, as well as inform concerned parties thoroughly about them. It should proceed with caution, however, and consider a surcharge system as a last resort to tackle malicious acts.

If the government were to introduce a system to impose surcharges, then the objective of the system should be to deter acts of violation rather than to assist recovery of damages, as that may confuse the administrative action with civil procedure. Also, if every situation involving labeling or representing products becomes subject to possible surcharges, then that could cause a chilling effect on business that try to comply with strict rules. Therefore, the types of acts subject to imposing surcharges should be limited to labeling and representation that, either willfully or through gross negligence, lead consumers to falsely believe that the quality, standard or any other aspect of a product or service is much better than in actuality or that make the price or any other terms seem much more favorable to consumers. For example, surcharges should not be imposed on a retailer just because it labeled a product improperly as a result of trusting the information provided by its supplier.

The burden of proof in cases of illegal acts subject to surcharges obviously falls upon the government, including determining whether or not there is deliberate intention or gross negligence. The levels of surcharges should be considered from the standpoint of consistency with the surcharge system related to the antimonopoly law's designation of unfair trade practices. Measures that would encourage businesses to take voluntary amends for the affected customers are also necessary, such as by decreasing the surcharge amount in the event a business operator voluntarily offers refunds to customers.

When imposing surcharges, due process of law should obviously be guaranteed, including the prior notice of an order to provide opportunities for a business operator to state opinions and submit evidence. The surcharges collected should be placed in state coffers, same as the surcharges collected under other laws.

Finally, if the government were to introduce the surcharge on misrepresentations, then we demand all the more strongly that the government publish the guidelines as soon as possible and make sure the businesses of all levels understand the rules clearly, as stated above.

Business Law