The legal environment and potential liabilities for celebrity endorsements in China are getting tougher. Five months after Chinese actress Jing Tian was fined RMB 7.22 million for her illegal endorsement of a Chinese brand of pressed candy (for more details, please see our previous article: http://blog.galalaw.com/post/102hvkz/why-brands-and-endorsers-should-both-understand-the-law-on-endorsements-in-china), the State Administration for Market Regulation and six other governmental authorities jointly issued China's first guidelines on celebrity endorsement, the Guidelines on Further Regulating Celebrity Endorsement Activities (the "Guidelines"), on October 31, 2022.
The Guidelines build upon article 38 of the Advertising Law, which stipulates that endorsements or testimonials for products or services in advertisements must be (a) based on facts and compliant with the law, and (b) shall not be made for products or services that the endorser has never used. The Guidelines for the first time provide detailed guidance on this use requirement, as well as other endorser and brand obligations. The Guidelines are indicative of a regulatory intent to tighten endorsement regulations. In this context, celebrities and brands should review their endorsement practices in order to ensure compliance.
Strict use requirement – more details: Under Article 38 of the Advertising Law, endorsers may not endorse products they have not used, but without further details it was very difficult for both endorsers and the authorities to determine whether this use requirement had been met. The Guidelines address this issue by establishing several criteria for "use". In particular:
- The endorser should make "full use" of the endorsed product, i.e. the time or amount of use should be comparable to an ordinary consumption experience for that product;
- Where an endorser endorses a product exclusively for infants or for the opposite sex, the product shall have been fully and reasonably used by such endorser's close relatives;
- During the endorsement period, the endorser should use the product with reasonable frequency;
- For products with a fast technology iteration period, such as electronics or automobiles, the endorser may only endorse the generation of the product that he/she has actually used; and
- Where an endorser is acting as a brand ambassador or similar role (e.g. "experience officer", "recommendation officer" or "image ambassador"), the advertisement shall indicate the specific product used by such endorser.
Endorser must act "based on facts and in compliance with the laws":The Guidelines require endorsers to fully understand the background of the enterprise for whose benefit they will be making the endorsement (including by checking the enterprise's registration information, qualification, and credit records), and ensure that the endorsement process and content are legally compliant. Note in particular that while the brand is primarily responsible for the legality of the content and arrangements of an endorsement, these obligations mean the endorser also bears substantial liability. This includes a number of specific criteria enumerated under the Guidelines, i.e.:
- Endorsers shall not endorse products or services that are prohibited by law from being manufactured/sold;
- Endorsers shall not make recommendations or testimonials for any products/services that they have not used (as discussed above);
- Endorsements shall not be made for entities without business license or enterprises without the necessary approval or qualifications;
- Endorsers shall not endorse tobacco and tobacco products (including e-cigarettes), off-campus training, medical treatment, pharmaceuticals, medical devices, healthcare food, and formula food for special medical purposes;
- Endorsers shall not leak state secrets or personal information;
- Endorsers shall not exaggerate the efficacy of products or services;
- Endorsers shall not engage in commercial defamation of other business operators;
- Endorsers shall not cite data that cannot be verified;
- Endorsers shall not misleadingly promote the product/service's price, preferential terms, etc.;
- When endorsing for an asset management product, endorsers shall neither promote nor promise, directly or in disguised form, any guaranteed principal or yield, nor imply guaranteed principal, no risk, or guaranteed yield by predicting investment performance; and
- When endorsing financial loan products, endorsers shall not blindly promote such products using terminology such as "low threshold", "low interest rate" or "easy to get" to cause misunderstanding among consumers.
Given the above rules, endorsers will need to be quite cautious and diligent with respect to confirming the legality and compliance of the entire endorsement arrangement, including all content and parties. The risks are significant – e.g. if an endorser's ad is deemed to be false advertising, he/she will be prohibited from being an endorser for three years since he/she receives the administrative penalty.
For brands who engage endorsers, the existing requirements under the Advertising Law are elaborated by the Guidelines as follows:
Script:The brand shall provide a relevant advertising script to the endorser and be responsible for the authenticity and legality of the advertising content.
Choosing the endorser:
- The brand shall not engage minors under the age of ten as advertising endorsers. Enterprises engaged in medical treatment, pharmaceuticals, medical devices, or healthcare food business shall not engage endorsers in their advertisements. Advertisements for off-campus training are not allowed, and for other education and training ads, enterprises shall not engage experts as endorsers.
- The brand shall not engage any endorser who has received an administrative penalty for making a false endorsement or testimonial in the past three years.
- The brand shall fully investigate the background and personal credit of the endorser before engaging him/her as an endorser, and shall not engage endorsers who have engaged in immoral or illegal activities. To illustrate this restriction, the Guidelines lists several typical cases of "illegal or immoral celebrities", namely, those who made prohibited political statements, or who were involved in drug use, gambling, drunk driving, indecency, tax evasion, fraud, or insider trading in securities. Any advertisement utilizing this kind of endorser would be recognized as hampering social stability, public order or social morals, thus violating article 9 of the Advertising Law.
The Guidelines come on the heels of several scandals in the world of celebrity endorsements in recent years. In this respect, with their strict standards and high expectations for both brands and celebrities, the Guidelines are a clear signal that regulation of endorsements will be stricter in the future. In this environment, brands and celebrities must protect themselves, including through the followings:
- Conduct mutual due diligence;
- Note that paid product introductions made during entertainment programs, interview programs and online broadcasts, etc. are considered endorsements, so both parties must maintain high standards and compliance diligence for all such activities, including as to content;
- Both parties should confirm that the proposed endorsement meets all requirements under the Guidelines, especially the endorser's use requirement, and all content requirements; experienced counsel or other agents can be engaged to clarify standards and provide protocols;
- Endorsement agreements/templates should be updated for the new requirements;
- Note that there is so far no commercial insurance specifically covering these kinds of endorsement-related liabilities in China, so parties should check their general liability insurance, and also make sure that indemnification provisions under the endorsement agreements are clear; and
- Each party should stay up-to-date on the other party's activities and news. If the brand has a scandal or legal issue, the endorser must quickly reconsider the relationship, and vice versa.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.