Introduction

Recently, the Chinese authorities issued two new regulations concerning internet search services and internet advertising. Among other things, these regulations have significant implications on the duties of internet content providers (ICPs) in the People’s Republic of China (PRC or China) to “actively” monitor the internet traffic and contents contained in the servers of the ICPs for potential violation of the PRC laws and regulations. These new regulations are summarized below, together with our analysis of the significance of these new regulations.

The Administrative Provisions for Internet Information Search Services

On June 25, 2016, the State Internet Information Office of China promulgated “The Administrative Provisions for Internet Information Search Services” (Administrative Provisions), which came into effect on August 1, 2016, and which specifically regulate the provision of internet search services in China. The Administrative Provisions were promulgated pursuant to the “Decision of the Standing Committee of the National People’s Congress on Strengthening Information Protection on Networks” (December 28, 2012) (NPCSC Decision) which, among other things, provides for the duties of internet service providers in regard to the protection of personal data privacy, data security, confidentiality, and theft of personal data.

Under the Administrative Provisions, the term “internet search services” is defined as “the use of computerized technologies in the collection and processing of various types of information available on the internet for searching by users.” The definition is extremely broad, and appears to cover not only dedicated search engines but also other services and websites with search services embedded in them.

The Administrative Provisions also impose the following duties and responsibilities upon internet search service providers:

(i) Internet search service providers should prohibit the display of contents forbidden by laws and regulations through “links, summaries, snapshots, related terms, relevant searches, relevant recommendations and other forms”;

(ii) Where the internet search service provider, during the provision of services, discovers that its search results “clearly” contained contents forbidden by laws and regulations, it must stop the provision of such search results, keep the relevant records, and report to the State or Local Internet Information Office;

(iii) Internet search service providers and their employees must not earn improper profits by means of providing search results with false information or dead links;

(iv) Where paid search services are provided, the internet search service provider must verify qualifications of their customers (i.e., advertisers), limit the proportion of paid contents displayed on each search results page, clearly segregate free search results versus paid search results, and indicate every search result that is a “paid” result; and

(v) Internet search service providers should set up a comprehensive complaint handling mechanism for users.

Interestingly, the Administrative Provisions do not provide for any penalties or potential liabilities for violation. However, it must be noted that the NPCSC Decision, upon which the Administrative Provisions are based, does provide for a general penalty provision of warnings, fines, confiscation of monies illegally obtained, revocation of licence, shutting down of the relevant website, prohibition of the relevant personnel in furtherance of internet businesses, and criminal and civil liabilities according to the law. It may be possible that a violation of the Administrative Provisions may be regarded as evidence of violation of the NPCSC Decision (as well as other laws in China), triggering the penalty provisions under the NPCSC Decision.

The Interim Measures for Administration of Internet Advertisements

On July 4, 2016, the State Administration for Industry and Commerce promulgated the “Interim Measures for Administration of Internet Advertisements” (Interim Measures), which came into effect on September 1, 2016. The Interim Measures serve as further clarifications of the PRC Advertising Law (last amended on September 1, 2015).

The definition of “internet advertisements” under the Interim Measures is extremely wide. Article 3 defines “internet advertisements” as “any commercial advertising which directly or indirectly promotes goods or services on the internet through websites, web pages, internet or mobile applications and other internet media, in the form of text, images, audio, video or other forms,” and further provides that the term includes advertising goods or services by the following means:

(i) Link-embedded texts, images, audios, videos, and other forms;

(ii) Email advertisements;

(iii) Paid search results;

(iv) Commercial displays; and

(v) Other forms of commercial advertising media.

The Interim Measures provide for various regulations regarding internet advertisements, summarized as follows:

(i) Prohibited Advertisements

Article 5 provides that internet advertisements for prescription drugs and tobacco are strictly prohibited. Article 6 further provides that internet advertisements for certain goods or services, which include medical treatments, medicines, agricultural chemicals, formula foods for special medical purposes, medical devices, veterinary medicine, and health foods are prohibited unless approvals from the Chinese authorities were obtained in accordance with the relevant laws and regulations. For example, any internet advertisement of medicines requires the approval of the China Food and Drug Administration before publication.

(ii) Clearly Marked Advertisements

Article 7 requires that all internet advertisements be visibly marked and easily identified as an advertisement. Paid ads must also be visibly marked as “ads” and thus differentiated from regular search results. The penalty for non-compliance with these regulations is a fine of up to RMB100,000.

(iii) Pop-Up Advertisements and Email Advertisements

Article 8 provides that “pop-ups” or advertisements which are promoted in the form of a prompt must be able to be closed by an obvious close button. Advertisements or links to the same cannot be included in a user’s email without his or her consent, nor can a user be induced or lured into clicking into such advertisements or links by deceptive means.

(iv) Responsibility of Internet Advertisers

Article 10 stipulates that internet advertisers are responsible for the authenticity of their advertising content.

(v) Responsibility of Internet Advertising Operators and Publishers

Under Article 12, internet advertising operators and publishers are responsible for establishing a comprehensive system for registration, verification and filing of their internet advertising businesses; examining and verifying the contents of advertisements in accordance with relevant verification documents; registering the name, address, contact information, and other identity information of advertisers; and maintaining and periodically updating those records. The penalties for non-compliance include administrative order for rectification and fines up to RMB50,000.

(vi) Responsibility of ICPs

Articles 17 and 27 provide that if an ICP “knows” or “should have known” that its information services were utilised by others to publish illegal advertisements, and fails to stop them, it could still be held liable under the Interim Measure--even if the ICP merely provided “information services” and did not directly engage in internet advertising operation activities. This means that ICPs, such as social media platforms and online marketplaces, may also be held liable if illegal advertisements were published on their platforms and the relevant ICP had actual or imputed knowledge of the illegality of such advertisements. The potential penalties are confiscation of monies illegally obtained, fines of up to three times the amount illegally obtained if the amount is more than RMB50,000 or fines of up to RMB50,000 if the amount illegally obtained is less than RMB50,000, and suspension of operations.

(vii) Unfair Competition

The Interim Measures guard against activities amounting to unfair competition. Articles 16(1) and 16(2) prohibit the use of software apps or hardware techniques for intercepting, filtering, covering, fast-forwarding, or the taking of other restrictive measures against internet advertisements operated by legal advertisers, or the use of network channels, network utilities or software apps for impairing the normal transmission of advertisements data, or the tampering or blocking of internet advertisements operated by legal advertisers. Article 16(3) further prohibits the use of fake statistical data, fake promotional effects or fake internet media value for inducing mistaken quotations, seeking illegitimate interests, or harming the interests of others.

Analysis

Both the Administrative Provisions and the Interim Measures reflect the Chinese government’s efforts to step up the regulations and scrutiny upon internet advertising activities and internet search services in China, with potentially severe penalties that may be imposed against operators violating the regulations. There are a few significant issues pertaining to the Administrative Provisions and the Interim Measures, analyzed as follows:

(i) Unclear definition. Neither the Administrative Provisions nor the Interim Measures provide for clear definitions of the terms contained in these regulations.

a. For example, the term “contents forbidden by laws and regulations” appearing in the Administrative Provisions was not defined therein. However, according to the transcript of a press conference held by the State Internet Information Office on June 27, 2016, the term appears to mean nine categories of contents, which are the same ones that ICPs are forbidden to transmit as provided under Article 56 of the Telecommunications Law (last amended on February 6, 2016) and Article 15 of the Internet Information Services Administrative Regulations (last amended on January 8, 2011). Such categories of contents are extremely broad, and it is unclear as to the basis upon which an internet search service provider could determine the legality or illegality of contents provided by its search engine.

b. The definition of “internet advertisements” under the Interim Measures appears to be very broad and imprecise as well. For example, the term “email advertisements” could be subject to at least three possible interpretations: 1) ads placed by the email service provider on its email service webpage; 2) advertisements embedded within the contents of emails sent by its users; or 3) subject line of emails sent by its users that may be considered as advertisements in nature. Further, it is unclear, under the Interim Measures, what is meant by “commercial displays” and “other forms” of internet advertising.

(ii) Unclear duties of ICPs. The most important issue generated by the two new regulations is the vagueness of the requirement of ICPs to actively monitor internet traffic going through their servers.

a. By way of background, the traditional position of Chinese law has been that ICPs are merely required to act “passively”; that is, to assume the duty of removing prohibited contents after receiving users complaints on infringements of the laws and regulations (which is regarded as having “knowledge” of the infringements), or to cooperate with government authorities in the monitoring of the internet traffic and the removal of contents designated by the authorities (see, for example, Articles 8 and 10 of the NPCSC Decision, and Article 36 of the Tort Law).

b. However, the Administrative Provisions require an internet search service provider to delete contents (and keep relevant records of deleted contents) once the internet search service provider “discovers” that certain search results “clearly” contained contents forbidden by the laws and regulations—it is not explained as to what it means by “discover,” or what it means by “clearly” contained forbidden information, or who is to determine the legality or illegality of the information contained in the relevant search servers.

c. Similarly, the Interim Measures expressly provide that these regulations do not merely apply to those who directly engage in internet advertising, but also apply to an ICP who simply provides “information services” (e.g., hosting services) and “knows” or “should have known” that its services were utilized by others for internet advertising prohibited under the laws and regulations. What is meant by “should have known” (i.e., a kind of imputed knowledge) in regard to an ICP was not particularized, and it is unclear under the Interim Measures as to whether or not an ICP would now need to have certain automatic mechanisms in place to actively scrutinize “illegal advertising.”

(iii) Application toward foreign-based ICPs. The geographic reach of both the Administrative Provisions and the Interim Measures could be extensive, given that these regulations apply to all ICPs providing search services, internet advertising services, and even hosting services that target the Chinese market, regardless of whether the relevant ICP is based in China or not. It means that foreign ICPs providing internet and information services in China should be alert to the requirements under these new regulations and should try to comply with these new regulations, to the extent possible.

We will closely monitor the implementation of the Administrative Provisions and the Interim Measures by the relevant departments of the Chinese Government. Although the new regulations appear to generate onerous and unclear duties upon ICPs in the control and monitoring of internet traffic going through their servers, ICPs should make a a first step toward complying with the increased level of monitoring of activities conducted on their service platforms. ICPs should design and implement policies and procedures that provide for circumstances under which contents are monitored and deleted for compliance with these regulations, and ensure that users’ consents will be obtained as and when required.