China’s New Online Advertising Measures and How Advertisers Should be Reviewing Their Practices

Jin Ling Executive of Rouse,[Comprehensive Reports]

  Just a year ago China introduced far-reaching amendments to its Advertising Law, updating the general legal framework and clarifying both advertiser obligations and non-compliance sanctions. The Law applied to online advertising, but only in general terms. Now, the State Administration for Industry and Commerce (SAIC) has introduced Interim Online Advertising Measures that provide specific guidance as to how the Advertising Law applies to all forms of online advertising. These Measures came into effect on September 1, 2016.
  The introduction of the Measures is both a response to the increasing volume of false and misleading internet advertising that has been taking place in China and a reflection of the country’s commitment to developing an appropriately regulated internet advertising environment. Many consider it was specifically prompted by the death of a young college student earlier this year after he used a cancer treatment that had appeared as the top result in an internet search and was a paid search result.
  The Measures are far-reaching, applying to all forms of direct or indirect commercial advertising through online media, including paid search results. In fact, concerns have been expressed in some quarters that the scope may be too broad, but the certainty and clarity introduced by the Measures is likely to be of benefit to both consumers and businesses in the long run. Given the dynamic nature of the internet environment, however, and the fast-changing online advertising practices, there will no doubt be challenges and uncertainties involved in implementation. In this context, it is important to note that the Measures have been marked "Interim", and that SAIC has indicated they are likely to be amended from time to time in the future.
  This note summarises some of the key provisions and comments on some of the uncertainties and challenges that are likely to be involved in their implementation.
  Key provisions
  Online advertising has been very broadly defined to include all forms of commercial advertising that directly or indirectly promote goods or services through websites, web pages, internet applications and other internet media in the form of texts, pictures, audios, videos etc. It specifically includes advertisements that contain links of any sort; email advertisements; and paid search listings.
  An Internet advertising publisher is defined as one who pushes or displays internet advertising and has the ability to verify the advertising content and decide whether or not it should be published. This will include advertising content creators and advertisers publishing advertisements through their own websites as well as information service providers such as search engines hosting third party advertisements. Internet advertising publishers and agencies are obliged to verify advertisers’ qualifications and to prevent the publication of material that does not comply with relevant advertisement laws.
  The sending of advertisements or advertisement links by email without the recipient’s permission is expressly prohibited.
  "Pop-up" advertisements must provide a prominently marked "Close" button and ensure that the advertisement can be closed by one click.
  Deceptive means must not be used to encourage consumers to click on advertisements.
  Online advertisements for prescription medicines and tobacco are prohibited and government approval is required for the advertisement of medical treatments, pharmaceuticals, foods for specific medical purposes, medical devices, pesticides, veterinary drugs and dietary supplements.
  All advertisements, both in foreign and Chinese language, must be distinguishable from non-advertising material and prominently marked with the word "advertisement" in Chinese; all "paid for" search results must be "prominently distinguished from natural research results"; and search engines must restrict advertisements to 30% of each search engine response page.
  Certain internet advertising activities are deemed to constitute unfair competition: e.g. the provision or use of applications or hardware that block or tamper with the lawful advertising of third parties; the use of network pathways, equipment or applications to destroy the transmission of advertisements, distort advertisements or load advertisements without permission; and the use of false information to induce inaccurate quotes, gain illegal earnings or impair third party rights or interests.
  The AIC’s have extensive investigative powers, including the power to conduct spot checks of venues suspected of engaging in illegal advertising activities; the power to question parties suspected of violating the law; the power to inspect and copy all relevant material. Businesses are obliged to keep records of advertisements and contracts for at least two years.
  Penalties for breach are provided by reference to the relevant provisions of the Advertising Law. They include administrative sanctions including confiscation of illegal gains plus a fine up to three times the illegal gain. In serious cases, the offending business could be shut down.
  Comments
  Since the introduction of the Advertising Law a year ago, there has been an increased focus on problems relating to online advertising and the need for specific regulation. The introduction of the Online Advertising Measures provides welcome protection for consumers and, at least in the long run, should provide a welcome degree of clarity for internet advertisers and platform operators. In the meantime, however, they should be prepared for their practices and procedures to be subjected to greater scrutiny than ever before. They may also be obliged to invest considerable resources in order to meet their increased regulatory obligations. The cost of internet advertising may increase as a result.
  While the Measures do clarify many issues and requirements, there are a number of areas that are likely to cause ongoing problems in practice.
  One of these is the obligation to label advertisements as "advertisements" in Chinese. It is not clear, for example, how this requirement will be satisfied in the context of celebrity endorsements on social media, or in the case of a company’s own website. In the case of celebrity endorsements, whether it is mandatory to disclose any monetary or other benefits to be received by the celebrity for such endorsements and if so, how this should be done in the social media context. In the case of a company’s own website, the entire site may, for example, be said to constitute ‘internet advertising’, but is it enough to mark the home page, or should every page be marked? It is not clear what would constitute compliance, standard practice, or best practice. Given the increasing number of professional buyers this is likely to be an important issue for website owners. Failure to comply attracts a penalty of RMB100,000 (approx. US$15,000); again, it is not clear how this penalty would be applied.
  Another issue that is likely to cause problems in practice relates to the liability of online marketplace operators. Given that it is virtually impossible for them to check every link, even if they use technical means to do so, how far does, or indeed should, their responsibility extend? It will ultimately be necessary to strike a reasonable balance between the interests of service providers and consumers, but, again, this is something that remains to be clarified.
  Because these and other issues are likely to be worked out in practice over the coming months, it will be important to keep a close watch on the cases and on any subsequent legislative amendments. In the meantime, all those advertising on the internet in China, as well as all relevant platform operators should be carefully reviewing their practices and procedures as a matter of priority.

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