The newly amended China Advertising Law, effective from September 1st 2015, introduces the concept of “advertising spokesperson” for the first time. On the very first day of its implementation, news came out that Shanghai Administration for Industry and Commerce (AIC) started investigation against the advertisement of “Hong Mao Medical Liquor” which involves a celebity Like all of a sudden, celebrity endorsement became a hot topic of discussion.
What concern people most are – how the new Advertising Law will impact celebrity endorsement, and how advertisers and spokespersons should react towards the new Law to minimize their legal risks?
What does “advertising spokesperson” mean?
As Article 2 of the new China Advertising Law goes, “advertising spokespersons” refer to the natural persons, legal persons or other organizations other than advertisers that recommend or demonstrate products or services in their names or images in advertisements.
From the definition, it is obvious that “endorsement” under China Advertising Law means “recommendation” or “certification”. In this sense, it differs from the definition of “endorsement” under the Guides Concerning Use of Endorsements and Testimonials in Advertising by Federal Trade Commission (“FTC”). FTC defines “endorsement” as any advertising message (including verbal statements, certifications, or depictions of the name, signature, likeness or other identifying personal characteristics of an individual or the name or seal of an organization) that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser. It does not require explicit recommendation or certification on the products or services by the Endorser.
Although legal persons and other organizations could be “advertising spokespersons” according to the Law, celebrities are always preferred to play the role of “spokesperson” under most circumstances, such as singing stars, movie and TV stars, and sport stars.
Restrictions on Advertising Spokespersons
First of all, minors under 10 are prohibited from being advertising spokespersons. Secondly, an advertising spokesperson can only recommend or certify a product or service under the circumstances that that he or she has actually used the product or accepted the service. In addition, spokesperson’s recommendation or certification is prohibited for some particular industries such as medical treatment, pharmaceuticals or medical devices.
We may note that there is actually no rule in the new China Advertising Law requiring the spokespersons to be bona fide users of the products or services that they recommend or certify, or to remain bona fide users during the publications of the advertisements.
Civil Liabilities for Celebrities Endorsing False Advertisements
Under Article 56 of the new China Advertising Law, where a false advertisement for the product or service concerning consumers’ life and health causes harm to the consumers, the advertising spokesperson(s) shall bear joint and several liabilities with the advertiser. Article 56 also provides that, where a false advertisement for the product or service other than those concerning consumers’ life and health causes harm to consumers, the advertising spokespersons who have or should have clear knowledge that the advertisement is false shall bear joint and several liabilities with the advertiser.
This is to say, for the products and services concerning consumers’ life and health, the spokespersons are under joint and several liabilities without fault. For the rest goods and services, the spokespersons are under joint and several liabilities with the advertisers, advertising agents and advertisement publishers only when they have faults, i.e., know or should have known the advertisement is false.
Administrative Liabilities for Celebrities as result of Improper Endorsements
Article 62 of the new China Advertising Law provides that, where an advertising spokesperson recommends or certifies medical treatment, pharmaceuticals or medical devices in an advertisement, or recommends or certifies a product or services that he or she has never used or accepted, or recommends or certifies a product or service in an advertisement while he or she knows or should have known it is false, the administrative authority for industry and commerce (AIC) shall confiscate the illegal gains and shall impose a fine not less than the amount of the illegal gains but not more than twice that amount. Basically, under such rule, not only will the celebrity be confiscated of his or her entire endorsement fee, but also will incur penalty amounting to one time or twice of the endorsement fee.
Nevertheless, the aforesaid penalty, when being compared to Article 38.3, is not even the most fatal in the new China Advertising Law towards celebrity endorsement. Article 38.3 provides a “mute period” rule as long as 3 years, i.e., a advertising spokesperson shall be banned from being an advertising spokesperson within 3 years from the imposition of administrative penalty due to recommendation or certification in a false advertisement. This means that a celebrity shall treat endorsement with uttermost caution and prudence. Otherwise, the consequence can be very disastrous as he or she will possibly not be allowed to endorse for any brand in the following 3 years.
Meanwhile, it should be noted that there is one issue not clear in the present Law – in case that a celebrity is subject to administrative penalty and banned from endorsing any brand in the following 3 years due to false advertisement, how to deal with other advertisements already produced for other brands? This is not explicit in the Law and remains to be solved in the future practice.
Advertising Spokesperson and Brand Spokesperson (Brand Icon)
It can be seen that the “advertising spokesperson” in the new China Advertising Law is defined in a somewhat different way from how “brand spokesperson” (or “brand icon”) is commonly defined in the course of marketing promotion activities by brand owners. “Advertising spokesperson” is not equal to “brand spokesperson” (or “brand icon”) in a strict legal sense. To start with, “advertising spokesperson” in the new China Advertising Law can be legal persons or other organizations other than natural persons. Besides, a celebrity can be an “advertising spokesperson” under the Advertising Law only if he or she recommends or certifies a certain product or service in his or her own name. Nonetheless, it is actually not made explicit in the law what statement or act counts as recommendation or certification, which probably will result in uncertainty in the course of enforcing the law.
Under most circumstances, brand owners only requests a celebrity to appear in an event to attract attention by media and public, or the celebrity only shows up in an advertisement without his or her direct recommendation or certification Plus, accompanying the wider and wider use of Wechat and Weibo, lots of celebrities would mention the brands through advertorials. Should this be categorized as recommendation or certification? No clear answer yet.
Advertising Spokesperson and Advertising Actor
Minors under 10 are prohibited from being advertising spokespersons under the new China Advertising Law. Recommendation or certification by ad spokesperson is also prohibited for the particular industries such as medical treatment, pharmaceuticals, medical devices or health food.
This does not mean that child stars under 10 will totally disappear from advertisements, or that celebrities will never show up in the advertisements for these particular industries from now on. The China Advertising Law actually does not forbid the appearance of a certain person as an actor or actress in such kinds of advertisements, as long as the person does not make any direct recommendation or certification. The advertising companies may try to be creative and let the celebrities or child starts under 10 perform as actors or actresses in the advertisements. Their performances may as well advocate the brands and leave impression on the audience. In this way, the performing celebrities and child stars, though being brand icons cannot be recognized as advertising spokesperson in the sense of China Advertising Law.
Issues Worth Mentioning in Celebrity Endorsement
How will the new China Advertising Law directly impact on celebrity endorsement? Will the celebrity endorsements or their endorsement fees be significantly decreased as a result? Maybe it is too early to tell now. However, there is one thing we can be certain of – the publication of celebrity endorsement advertisements will be under stricter and closer administrations by authorities. Meanwhile, the litigations initiated against celebrities by consumers (including the so-called “consumer rights protection activist”) based on false endorsement will be inevitable.
From the perspective of the brand owners, prior to sign any celebrity, it is important to ascertain whether he or she has been the subject of administrative penalty for false advertisement and is still in the “mute period”, and whether he or she will provide endorsement service for the particular industries such as medical treatment, pharmaceuticals, medical devices or health food. If there is any difficulty to fully ascertain, it will be necessary to obtain the celebrity’s written guarantee to the same effect. In addition, brand owners will be seeking stagger payments to celebrity over the course of endorsement or a campaign. Staggering payments beyond launch will be common. Once the advertisement endorsed by the celebrity is ordered to halt by enforcement authorities due to the celebrity’s own reasons, the corresponding endorsement fee shall not be settled any more. Concurrently, the brand owners shall initiate contingency plan to replace the banned advertisement. Needless to say, the indemnity clause should be an important and integral part in the endorsement contract.
From the perspective of the celebrities and their agencies, caution should be placed first when they make choice on endorsement campaigns. Firstly, celebrities should experience the product or service before endorsement. Secondly, if it becomes inevitable for the celebrities to be involved in endorsement campaigns for the industries concerning life and health (including but not limited to food, pharmaceuticals, health food, medical treatment, beauty and cosmetics, etc.), extra prudence is highly recommended. In addition to the foregoing, rights and obligations of the celebrities and brand owners for the purpose of their cooperation should be set out in detail in the contracts. If possible, it’s advisable for celebrities to show up in the advertisements only as performers. The contents of commercial scripts, copies and shooting samples should be carefully reviewed by celebrities and their agencies before publication. The methods of using the advertisements (via newspaper, magazines, TVs, broadcast, internet, POP, direct mail, vehicle or bus body, wall or light box) should be agreed in writing in the endorsement contracts. Celebrities should try to avoid direct recommendation or certification either during the shooting of commercials, or in self-media such as Weibo or Wechat. Lastly, celebrities and their agencies shall require the advertisers (brand owners) to guarantee the legitimacy of the production and publication of the advertising, and increase the advertisers’ duty of indemnity in breach. In case of ligations initiated by consumers, celebrities and agencies should hire professional PR companies and react actively along with lawyers.