In recent years, false advertising has been rampant in China and the country’s twenty-year old Advertising Law (the Old Law) badly in need of revision. The long-awaited amendment was finally passed on 24 April 2015 and will come into effect on 1 September 2015 (the New Law). The New Law introduces a range of stricter controls on advertising and should give a boost to consumer protection in China.
Here are some of the highlights.
A. STRICTER REGULATION OF THE SCOPE AND CONTENT OF ADVERTISEMENTS
- Expanded definitions of ‘advertisements’ and ‘advertisers’
Previously the Advertisement Law applied only to advertisements for which an advertising fee had been paid. This meant that various new and ‘indirect’ forms of advertising were not subject to the Law. Removal of any reference to advertising fees means that the New Law will apply to all forms of commercial advertisement, including free or ‘disguised’ advertisements.
Also, whereas the Old Law applied only to legal entities and other economic organizations, the New Law extends to individuals as well. Advertisement endorsers are also specifically regulated under the New Law.
- Introduction of higher advertising standards
The New Law imposes a generally higher standard of care on both advertisers and media publishing advertisements e.g. advertisements using children younger than the age of 10 to endorse a product are prohibited and controls introduced in relation to advertisements targeting juveniles (Arts. 38 - 40); and there are rules to prohibit the making of vague statements in advertisements.
- Stricter regulation of advertising of specific products and services e.g. healthcare and tobacco
The New Law introduces tough new regulations in relation to the advertising of specific products and services of general public concern. These include food (especially infant formula and health foods), pesticides, veterinary drugs, animal feed and feed additives, medicines, financial products, medical devices, alcohol, tobacco, medical services, education, financial, training services, real estate, agricultural products (e.g. crops and seeds).
In general, these regulations impose a heavier burden on the advertiser and in some cases ban advertising altogether e.g. tobacco advertisements are generally banned (with the possible inferred exception of indoor advertisements in licensed cigarette shops) (Art. 22); advertisements relating to health foods must not contain medical-treatment claims (Art. 18); and explicit disclaimers are required in advertisements for medicines (Art. 16).
The consolidation and upgrading of these provisions should bring more clarity, consistency and certainty in application of the law by the authorities.
B. SPECIFIC MEASURES TO TACKLE FALSE ADVERTISING
The New Law clarifies what constitutes false advertisement (Art. 28) – this has always been uncertain under the Old Law. The definition provides that, if an advertisement confuses or deceives the consumers by false OR misleading content, it shall constitute false advertisement. By way of illustration, four specific scenarios and a cover-all clause are contained in the legislation.
Although these scenarios may, to some extent, already be covered in other legislation, e.g. the Law on Protection of Consumer Rights, the provisions of the New Law are much clearer, and the penalties much higher. It is, therefore, likely to be a more effective vehicle for tackling false advertising.
C. TIGHTENING UP THE METHODS FOR ADVERTISING
- Liability for false endorsements
The New Law imposes liability on individuals making endorsements that do not comply with the law. This is seen as a big step forward in terms of consumer protection. Previously celebrities endorsing products or services were not properly regulated, except in relation to the endorsement of foods under the Food Safety Law (effective from 1 June 2009).
Art 38 of the New Law contains conditions relating to endorsements e.g. personal experience of using the endorsed product or service is necessary. If the endorser is aware of the falsity of the advertisement, he or she will be liable to forfeiture of the illegal gains plus a fine of up to two times that of the illegal gains. In the case of a false advertisement relating to a health related product or service, however, the endorser will be liable whether or not he or she had knowledge of the falsity.
- More restrictions on advertising methods
The New Law also prohibits unsolicited advertisements being sent either electronically or to a private address (Art. 43). It also requires pop-up advertisements can be closed with one-click (Art. 44). Perhaps more importantly, it puts the burden on Internet service providers to cease illegal advertisements via their platforms (Art. 45).
Nevertheless, given the rapidly evolving Internet and creative yet complicated methods of advertising in the digital age, it is likely that more regulation will be required in this area.
D. INCREASED POWERS OF ENFORCEMENT AND INCREASED PENALTIES
The New Law increases the penalties for illegal advertisements, and increases the authorities’ powers of enforcement, particularly those the State Administration of Industry and Commerce and its local branches (the AIC).
The AIC now has extensive powers of inspection end enquiry and the right to make copies of and retain relevant documents and materials. It can also require cessation of advertisements it considers illegal. None of these powers existed under the Old Law.
The New Law contains significantly increased penalties e.g. in Art. 55 a fine of 1-5 times the advertising fee has been increased to 3 - 5 times the advertising fees. Where the advertising fees cannot be easily calculated, or will be too low, provision has been made for a statutory fine of RMB200,000 - 1,000,000. Repeated violations, three times in two years, may lead to a fine of 5 - 10 times that of the advertising fees, or a statutory fine of RMB 1,000,000 - 2,000,000, in addition to revocation of the advertiser’s business licence.
Advertising agents, advertising media, and persons or organizations responsible for relevant advertising platform (including but not limited to the relevant Internet service providers) would be liable to separate fines.
While there may still be areas requiring further explanation or clarification, the New Law provides much clearer guidance and, consistency. It also introduces much more stringent controls on advertising. For advertisers, and those engaged in the advertising industry or otherwise involved in advertising, it means that much greater care should, in future, be exercised in future when advertising or doing business in China