SAIC tightens its grip on online advertising in newest draft measures

Given the lower level of government scrutiny and the widespread use of (mobile) internet, online advertising has become very popular in China. However, in the wake of China’s new Advertising Law, the State Administration of Industry and Commerce (SAIC) has now turned its attention to the online environment, recently issuing its Draft Interim Measures for Supervision and Administration of Internet Advertising. The draft measures have implications for virtually every company providing goods or services in China, and this update summarises the highlights.

Under the draft measures, the scope of regulated internet advertising would be enlarged to encompass all “commercial presentations” – including endorsement by celebrities – distributed via websites, emails, social media, instant communication tools and mobile applications. Covered advertisements could be in any format, including words, images, audio and video or “any other format” (it is anticipated that this would include holograms in the future). This means that advertisements on micro-blogs, instant messaging services, mobile applications and via 'ad-words' on search engines would be regulated. Companies need to understand the broad scope of the draft measures in order to effectively manage their risk.

Under the draft measures, advertisers, advertisement operators and publishers would be required to display their relevant AIC registration and contact information, enabling consumers to easily verify the source of the online advertisements. While focused on the consumer, this requirement could benefit companies investigating online infringement of their IP rights (eg, the online promotion and sale of counterfeit or pirated goods).

The draft measures also require advertisements to be presented in a way that enables consumers to easily identify them as advertisements. So-called hidden advertising will no longer be allowed. For example, promoted search results on search engines (eg, by buying ‘ad-words’ such as trademarks) must indicate that they are ‘sponsored’ results. Also, email or instant messaging advertisements would have to be clearly marked to enable consumers to identify them as advertisements before opening them. Finally, recommendations by paid endorsers would also have to be identifiable as such. All of these requirements are intended to make online advertising more transparent to consumers, but can catch unwary business owners off guard and be subject to administrative penalties for non-compliance.

The draft measures also provide a list of acts that would be prohibited as unfair competition:

• intercepting, filtrating, covering, tampering with, obstructing or interfering with third-party advertisements;
• improving one’s own ranking, or harming the legitimate interests or reputation of others by unfair means like false traffic, malicious embedding of data or malicious clicking;
• restricting others from entering a market via alignment or alliance;
• using trademarks and/or trade names of third parties as keywords for sponsored search engine advertisements.

The list appears to draw on experience from both competition law and trademark law, and the prohibition on using others’ trademarks and trade names as keywords for searches should be a welcome sight for trademark owners dealing with this issue.

The draft measures would also extend the “single click-away” rule from internet pop-up ads to emails or instant messaging advertisements. Unfortunately, similar to the Advertising Law, the draft measures are silent on the regulation of product and service placement, which remains highly controversial in China.

E-commerce in China is exploding. While it is laudable that the draft measures try to protect consumers from fraudulent and unfair online advertising practices, we also caution that companies must not be unreasonably restricted from advertising their goods and services and otherwise operating their legitimate business.

Eugene Low and Deanna Wong, Hogan Lovells, Hong Kong