Product endorsements under new Trade Descriptions Ordinance - more guidance needed

Product endorsement is a very common marketing tactic whereby a company uses a celebrity's popularity to promote a product. Hong Kong's original Trade Descriptions Ordinance, enacted in 1980, did not cover this practice. The new amended Trade Descriptions Ordinance, which came into force on July 19 2013, and the accompanying Enforcement Guidelines for the Trade Descriptions (Unfair Trade Practices) Ordinance 2012 now address the issue of product endorsement, but the legal boundaries of what constitutes an acceptable practice are yet to be established. 

The new ordinance introduces five new offences, including 'misleading omissions' (Section 13E), modelled after the EU Unfair Commercial Practices Directive (2005/29/EC). Under Section 13E, a commercial practice is a misleading omission if it fails to identify its commercial intent, unless this is already apparent from the context, and as a result it causes, or is likely to cause, the average consumer to make a transactional decision that the consumer would not have made otherwise.

Section 13E does not explicitly mention the issue of product endorsements - specifically, it does not address whether the non-disclosure of a commercial relationship between the endorser and the company constitutes a misleading omission under the ordinance. There is, at present, no relevant Hong Kong case law under this new section. 

However, the Enforcement Guidelines issued in July 2013 directly address the issue of product endorsement and confirm that, under certain circumstances, such endorsements may be considered as a misleading omission under Section 13E of the ordinance.  

Paragraph 3.40 of the guidelines provides as follows:

"A trader may commit a misleading omission offence if he fails to identify the commercial intent of a commercial practice, and as a result, it causes or is likely to cause the average consumer to make a transactional decision that the consumer would not have made otherwise. While such an intent is apparent in the majority of cases (eg, the presence of a price often notifies the commercial intent of the advertisement, or a TV advertisement is clearly perceived to be promoting a product), the commercial intent of an 'advertorial' may not be readily apparent if it does not make clear that it is an advertisement. For example, its way of presentation may make it hardly distinguishable from the rest of the publication in which it appears."

The guidelines continue with an example concerning celebrities at Paragraph 3.41:

"The genuine engagement of celebrities in product promotions is a legitimate practice, but a trader may commit a misleading omission offence if he engages a celebrity to disguise himself or herself as a consumer and arranges for him or her to be photographed by the unsuspecting media at a product exhibition without disclosing any contractual relationship between the celebrity and the trader, and as a result, causing the average consumer to make a transactional decision that the consumer would not have made otherwise."

Accordingly, it is important for the commercial intent of any product endorsement to be made clear. However, Section 13E and the guidelines provide the exception that a promotional activity will not constitute a misleading omission if the commercial intent is apparent from the context. This could be contrary to the aim of more sophisticated product endorsement campaigns, the goal of which is to ensure that the endorsement remains subtle. For example, companies will often ask celebrities to post photos of themselves using certain products on social networks with no indication that such uses are part of a product endorsement. For now, there is little guidance on what might be "apparent from the context". One will likely need to wait for a court to consider such a case to know whether a celebrity endorsement without apparent commercial intent constitutes a 'misleading omission' under the ordinance.

It should be noted that the ordinance does not preclude traders from ever referring to celebrities in the course of promoting their products. According to the guidelines, a trader stating that a celebrity has acquired or used its product will not contravene the ordinance if the reference is valid and genuine. 

In the United Kingdom, the Unfair Commercial Practices Directive has been adopted as the Consumer Protection from Unfair Trading Regulations 2008. The regulations are enforced by the Office of Fair Trading (OFT). While there is no UK case law on the issue of misleading omissions in the context of product endorsements, the OFT has issued a Q&A subsequent to an investigation in 2010 regarding the online promotional activities of the operator of a commercial blogging network which lacked sufficient disclosures to make it identifiable to consumers that the promotions had been paid for.

In the Q&A, regarding any special language required to make sufficient disclosure of a promotional campaign to comply with the regulations, the OFT states in quite unspecific terms that:

"[i]t is not for the OFT to specify the particular language to be used by traders in any given case to ensure that relevant commercial practices are compliant with the regulations. However, disclosures should clearly identify, in a manner prominently displayed with the editorial content such that it would be unavoidable to the average consumer, that the promotion has been paid for or otherwise remunerated."  

From the OFT's statement, it seems that the UK position on this issue is yet to be fully fleshed out.

Back in Hong Kong, in considering whether a certain act caused the average consumer to make a transactional decision, or whether the commercial intent was apparent, care is to be had of the term 'average consumer', which takes into account the material characteristics of the consumer (Section 13D). Special attention should be taken when the average consumer is "vulnerable", such as in the case of children. Under these circumstances, it may be possible that the threshold for "apparent from the context" is higher, and thus a more complete disclosure of the commercial intent would be required to comply with the ordinance. On the other hand, in the age of social networks, young consumers may be more sophisticated about non-conventional product endorsements and may arguably be less vulnerable. 

The acceptable product endorsement practices which make the commercial intent apparent from the context under the ordinance probably lie somewhere between a partial disclosure and a complete disclosure in which the celebrity states outright that s/he is paid to promote the product. Going forward, it is anticipated that case law, newer editions of the guidelines and future versions of the ordinance will shed more light on this issue.

Hank Leung and Ai-Leen Lim, Bird & Bird, Beijing