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Market Research Interim Report on Digital Advertising by the Japan Fair Trade Commission (“JFTC”)

The JFTC published the “Interim Report Regarding Digital Advertising” (“Interim Report”) on April 28, 2020 based on the market research (“Research”) conducted by the JFTC.1 The Research was conducted in accordance with the “Basic principles for developing rules in response to the rise of platform businesses” (“Basic Principles”) issued jointly by the JFTC, Ministry of Economy, Trade and Industry (“METI”) and Ministry of Internal Affairs and Communications (“MIAC”) on December 18, 2018.2

Japan has been exploring options for greater regulation of digital platforms in order to ensure fairness and transparency in their dealings with business users and consumers. On December 18, 2018, the JFTC, METI and MIAC jointly issued the Basic Principles that state, among various principles, to implement transparency for securing fairness concerning digital platform operators. It further provides that as a starting point for realizing transparency and fairness, the Government of Japan will conduct large-scale and comprehensive investigations to understand reality of relevant transactions.

Previously, the JFTC conducted researches about online retail platforms’ and app stores’ transactions and published the “Report regarding Trade Practices on Digital Platforms” (Business-to-Business Transactions on Online Retail Platform and App Store) on October 31, 2019.3

The Research this time focused on digital advertising, specifically on programmatic advertising, including keyword-triggered advertising and digital display advertising.

Programmatic advertising is the automated buying and selling of online advertising. Advertisements are selected and distributed to consumers by using an automated mechanism based on attribute information or the like of each consumer. This automation makes transactions efficient and more effective.

Keyword-triggered advertising and display advertising are types of programmatic advertising. Keyword-triggered advertising distributes advertisements that are related to keywords used by consumers on search engines. Digital display advertising displays advertisements on internet website (e.g., apps or social media) that are optimized in consideration of each consumers’ interest, etc.

According to the Report, the market size of advertising industry has been increasing in Japan, especially digital advertising industry has been growing dramatically. In 2019, the total advertisement expense was approximately JPY 7 trillion (approximately US$65 billion), which is approximately 1.3% of the GDP, and the total digital advertisement expense was more than JPY 2 trillion (approximately US$18.6 billion).

The Interim Report points out that digital platform operators that provide search engines and/or social media often play not only the role of media, but also the role of advertising intermediary. In that sense, digital platform operators are competitors with advertising intermediaries.

The Research was conducted from two perspectives, including (i) viewpoints of Anti-Monopoly Act and transparency and fairness of transactions, and (ii) consistency or balance between the ideal use of information including personal information by companies and application of abuse of superior bargaining position (“ASBP”) to business-to-consumer transactions.

The Research includes a hearing survey and a questionnaire survey. For the hearing survey, the JFTC interviewed 30 businesses that have direct or indirect business relationship with digital platforms, five major digital platforms and two experts. The questionnaire survey includes questionnaires for businesses and consumers. Results of inquiries for businesses and consumers are attached to the Interim Report.4

The results of inquiries for business indicate some issues, for example, many of the businesses experienced that terms and conditions with digital platforms are uniform and cannot be modified in consideration of individual circumstances. The results of inquiries for consumers include that many of the consumers are not aware that information they put on search engines is used for advertisement.

The Interim Report indicates that the JFTC continues the research. It emphasizes that the research will be conducted from the perspective that digital advertising constitutes a multi-sided market that has network effects.

More specifically, with respect to business-to-business transactions, the JFTC will investigate (i) whether digital platforms are not inflicting unfair advantage on counterparties, for example, by changing the terms of contracts unilaterally, (ii) whether digital platforms are not unjustly excluding advertising intermediaries (i.e., competitors) when the digital platforms play the roles of media and advertising intermediary, and (iii) whether digital platforms are not unjustly restricting counterparties, for example, by prohibiting the counterparties from advertising other than via the digital platform.

As to Business-to-Consumer transactions, the JFTC will see if collection and usage of information including personal information by digital platforms would violate ASBP.

In addition, the JFTC will further research on competitive situations surrounding digital platforms and digital advertising.

 

1 The JFTC Press Release on April 28, 2020 in English is available at https://www.jftc.go.jp/en/pressreleases/yearly-2020/April/200428.html
2 The Basic Principles are available in Japanese at https://www.jftc.go.jp/houdou/pressrelease/h30/dec/181218.html
3 The JFTC Press Release on October 31, 2019 in English is available at https://www.jftc.go.jp/en/pressreleases/yearly-2019/October/191031.html; Summary of the report in English is available at https://www.jftc.go.jp/en/pressreleases/yearly-2019/October/191031Summary.pdf; Tentative English translation of the report is available at https://www.jftc.go.jp/en/pressreleases/yearly-2019/October/191031Report.pdf
4 Results are available in Japanese at https://www.jftc.go.jp/houdou/pressrelease/2020/apr/digital/200428besshi1.pdf (inquiries for businesses) and https://www.jftc.go.jp/houdou/pressrelease/2020/apr/digital/200428besshi2.pdf (inquires for consumers)

 

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