Interpretation of the Key Provisions of the New Advertising Law

The new Advertising Law, which took effect on September 1, 2015, has aroused strong reactions from all walks of life immediately after its release due to multiple revisions and addition of terms to an unprecedented degree of detail and severity. So what are the important changes to the new Advertising Law? This article makes a brief interpretation mainly from the perspectives of false advertisement, the advertisement spokesperson, the Internet advertisement, the absolute expression, the gift advertisement and so on.  

I. The definition of the false advertisement is clarified and the relevant penalties are aggravated

According to the old Advertising Law, only the advertisement containing false contents constitute the false advertisement, while the new Advertising Law further adds elements of "misleading" and “misguiding consumers” and the false advertisement is defined as "an advertisement that uses false or misleading contents to deceive and mislead consumers". That means that as long as there is false content in the advertisement, it is bound to constitute false advertisement. But even if the content of the advertisement is difficult to discern true or false or even completely true, it will constitute false advertising as long as it causes misunderstanding among consumers. For example, some air conditioning advertisement claims that "just 1KW electricity a day", but fails to indicate that the data is a theoretical value in the laboratory, and also fails to explain that the floor, orientation, airtight degree, number of people, outdoor temperature and other factors of the room may have an important impact on power consumption, thus causing misunderstanding of consumers, accordingly, it will constitute the false advertisement.

Curbing false advertisement is the core content of the new Advertising Law, for that, the Law strengthens relevant penalties, which is reflected in the followings:

1. Raise the amount of fines: an increased fine of 3 to 5 times of the advertisement fees may be imposed on false advertising merchants; a fine RMB200,000 to RMB1 million may be imposed if the advertising fee is unable to be calculated or is obviously low.

2. Aggravated punishment: a fine of 5 to 10 times of the advertisement fees may be imposed where the false advertisements are released for more than three time within two years; a fine RMB1 million to RMB2 million may be imposed if the advertising fee is unable to be calculated or is obviously low. At the same time, the business license may be revoked, and the relevant qualification of advertising may be revoked.

3. The advertising company or the media will receive the same punishment if it knows or should know the advertisement is false but still designs, produces, represents and publishes such advertisement.

II. The legal obligations and liabilities of the advertising spokesperson are added

Using stars as spokespersons is already commonplace in today's advertising market. For that, the old Advertising Law has no regulations, while the new Advertising Law has made the strict regulations on the "advertisement spokesperson", including the followings:

1. Endorsement premise. The new Advertising Law stipulates that the advertising spokespersons shall not recommend or otherwise recommend products for which they have not used or services they have not received. In other words, if a spokesperson intends to endorse a product or a service, he/she must first use the product or receive the service. As a result, using male stars to endorse female products, which is common in the past, will be deemed unlawful.

2. Field restrictions. In the past, advertisements using various stars to recommend drugs can be seen everywhere, such as the oral liquid, the so-and-so drug, the so-and-so cold medicine, and so on. However, such advertisements will be suspended after the new Advertising Law is released, because the Law stipulates that advertisements for medical care, drugs, medical devices and health food shall not use advertising spokespersons for .recommendation or endorsement.

3. Age limit. In recent years, the advertising campaigns using child stars have intensified, and the new Advertising Law undoubtedly throws cold water on the craze. The Law stipulates that minors under the age of 10 shall not be used as advertising spokespersons. Since such minors do not have the ability to discern their products or services, they do not qualify for advertisement endorsement.

4. Legal liabilities. Under the new Advertising Law, if the false advertisement causes harm to the consumer, the spokesperson shall be liable for joint compensation under the following two circumstances. (1) In the case of an endorsement of a general product or service, the spokesperson shall assume joint and several liabilities resulting from the fault of the spokesperson. (2) In case of an endorsement of a product or service affecting the health of consumers, the spokesperson shall be jointly and severally liable even if the spokesperson is not at fault.

In addition, according to the new Advertising Law, if an advertising campaign is deemed to be unlawful, the competent Administration of Industry and Commerce can confiscate the unlawful income of the spokesperson and impose a fine of more than 1 time and less than 2 times of the unlawful earnings. If a spokesperson is punished for endorsing a false advertisement, he/she will be banned from advertising for three years.

III. Regulations on electronic information advertising and Internet advertising are added.

1. Special provisions of electronic information advertisements

In response to the endless stream of spam messages and spam mails, the new Advertising Law has formulated the following rules: (1) without the consent of the recipient, the advertisement should not be sent to the recipient by electronic information; (2) the actual identity and contact information of the sender shall be shown and the receiver shall be provided with a way to refuse to continue receiving.

If a merchant violates the above provisions, the law enforcement department shall have the right to order the suspension of the unlawful act, and impose a fine of more than RMB5,000 and less than RMB30,000.

2. Special provisions on Internet advertising

In addition to the characteristics of general advertising, Internet advertisements also have new features such as popup and display in a variety of ways. Therefore, the new Advertising Law stipulates that the distribution of Internet advertisements should not affect users' normal use of the network; Internet pop-up ads should clearly mark the signs of the closing keys and ensure that the ads can be closed with one click.

3. Responsibility for the suppression of unlawful advertisements

The new Advertising Law also stipulates the liabilities of the telecommunication business operators and Internet information service providers to stop the unlawful advertisement of electronic information, namely, where they know or should know that someone is using their places or information transmission and distribution platform to publish and distribute unlawful advertisements, they shall stop such advertisements.

IV. Possibility of heavy fines for advertisements using absolute expressions.

For the purpose of preventing merchants form exerting exaggerative or overstated advertisement means to falsely advertising their products or services, the new Advertising Law prohibited the use of "national", "the highest", the "best" and similar expressions in advertisement language, and the merchants who violate such rules  shall be subject to a fine of RMB200,000 to RMB1 million by the competent Administration of Industry and Commerce, up to revoking the business license and the advertisement release qualification certificate and others.

In addition to the three expressions cited in the new Advertising Law, the State Administration of Industry and Commerce also pointed out that the use of other absolute expressions such as "top", "gourmet", "the first brand", "the lowest price on the Internet", "the lowest price in the history", "top sales ", and "ranking number one" belong to unlawful advertisements. There are many other kinds of absolute expressions used to describe space, size, number, old and new, strength and weakness. If they are misused in advertising campaigns, the merchants, advertising agencies and advertising media are likely be imposed on heavy fines.

V. The obligation to expressly define the gifts in the advertisements

In practice, quite a number of merchants announce that they will provide gifts or additional services to consumers in the advertisements in order to attract consumers and promote sales. But some of such advertisements are controversial because they are not clear. Common circumstances include:

1. The gifts described in the advertisements are inconsistent with actual promotional gifts. For example, the promotion claims giving away gifts of high quality cosmetics but the actual gifts are cheap cosmetics; the promotion claims "buy one get one free", but the actual gifts are a pair of insoles for purchase of a pair of shoes.

2. The advertisements fail to state the strings attached to obtain or use gifts. For example, the claim is that anyone comes to the shop will receive a gift, but in fact there are only a limited number of gifts or only the customers who spend a certain amount of money are eligible for the gifts.

For that, the new Advertising Law provides an obligation to expressly define the gifts in the advertisements. Specifically, where there is claiming of giving away gifts in the advertisement, the key information on the gifts (varieties, specifications, quantity, time limit and manner) must be explicitly and clearly described, otherwise the advertisement may be deemed unlawful. Such provision can help prevent merchants from deliberately publishing information with respect to gifts in an ambiguous manner to attract consumers and engage in unfair competition. It can also help prevent consumers from being misled for the purpose of reducing unnecessary disputes.