Dealing with social media influencers in China

Influencer endorsement

Influencer ‘endorsement’ is mainly regulated under the Chinese Advertising Law (CAL), which is the main body of legislation governing commercial advertising activities in China. The CAL applies broadly to commercial advertising activities in which commodity dealers or service providers directly or indirectly present goods or services marketed by them within China.

Up to 2015, the CAL contained no provisions in relation to endorsements or influencer activities. When a new version of the CAL was adopted in 2015, however, a definition of ‘endorsers’ (in China also often called ‘Key Opinion Leader’, ‘KOL’ or ‘关键意见领袖’) and specific provisions directed at endorser activities were enshrined in the CAL. Endorsers are defined in a broad and neutral way as: ‘natural persons, legal persons or other organisations other than advertisers that recommend or demonstrate products or services in their name or image in advertisements’ (see Article 2 of CAL). The CAL does not contain any definitions or other provisions regarding the elements of ‘payment’ or ‘control’ in endorsement activities, and neither has the administrative authority in charge of enforcing the CAL, i.e. the State Administration for Market Regulation (SAMR, formerly known as the Administration for Industry and Commerce), issued any administrative regulations in this regard.

Moreover, the 2015 CAL also clarifies that it is applicable to internet advertising activities (Article 44 of CAL) but does not provide many specific provisions in this regard. On this basis, the SAMR issued the administrative regulation ‘Measures for the Administration of Internet Advertising’ (Internet Advertising Measures) which further defined internet advertising activities broadly as ‘commercial advertising which directly or indirectly markets goods or services through websites, web pages, internet application programs, and other internet media in the form of text, images, audio, video, or other forms’.

On the basis of the above, influencer ‘endorsement’ is a broadly understood concept for both online and offline commercial advertising activities, and generally does not require direct payment, formal control or other established connections between influencer and advertiser, according to the provisions in the current laws and regulations in China. These concepts, influencer ‘endorsement’, ‘payment’ and ‘control’ may therefore be broadly interpreted by the authorities when assessing whether particular influencer activities constitute either regulated advertising endorsements or unregulated personal reviews posted by users of products or services.

One last thing worth mentioning is that the endorser has to be a party other than the advertiser. Therefore, if an influencer endorses its own products, or if an advertiser instructs one if its employees to recommend its own products, such acts are considered direct advertising and usually do not constitute influencer endorsement under the advertising laws and regulations.

Disclosure requirements

Article 14 of CAL provides for a general duty to display advertisements in a way that makes them distinguishable from other information, and in a way that enables consumers to identify them as such and pre-vents misinformation. The Internet Advertising Measures further provide that internet advertisements must be recognisable and marked with ‘广告’ (‘advertisement’) in a prominent way, to enable consumers to identify it as an advertisement. Failure to disclose advertisements as such may result in administrative penalties, such as correction of the violation (eg the deletion of the endorsement or posting or editing to give clear clarification that it constitutes an advertisement) as well as the imposition of a fine of up to RMB100,000 (approximately US$15,000), see Article 59 of CAL.

The extent of control over the endorsement message by the brand instructing the influencer, or the previous commercial arrangements between influencer and the brand are not directly relevant. As soon as an endorser is working on assignment for a brand and is not merely publishing an independent review, it will be considered advertising and the endorsement will have to be marked as ‘广告’ (‘advertisement’) or the relationship with the brand will need to be otherwise clearly disclosed, eg through an on-screen banner or highlighted caption etc.

The exact degree of brand control does not directly impact the influencer’s responsibility to make appropriate and clear disclosure statements as required under the relevant laws in China. While there are no official guidelines or regulations concerning this issue, as a general rule of thumb, as soon as an influencer endorsement is made commercially, i.e. on assignment for or on behalf of a brand, the endorsement needs to be disclosed as an advertisement. In practice, the administrative authority supervising advertising in China, namely SAMR and its local branches, usually investigates several factors to decide whether an endorsement constitutes an advertisement, including: payment by a brand to an influencer, whether in cash or in another form; and the communications between the brand and the influencer for the endorsement, such as contracts or communications in other forms etc. That being said, there are no clear official regulations or guidelines as to how to assess these factors.

Some specific examples:

• material which is communicated with no obligation to do so (and with no control) after having received a freebie—this is likely to be considered an independent review of a product and service, with no duty to disclose it as advertising or '广告'. However, this assessment might change in case the value of the freebie is not symbolic or minor (eg a freebie sample cosmetic product v a freebie holiday in a luxury resort)
• a freebie with or without payment about which there must be a communication but over which the brand owner has no control—regardless of the degree of control by the brand, as soon as a payment is made by the brand, the endorsement will normally be considered an advertisement and will need to be disclosed as such. If no payment is made, and only a symbolic or low-value freebie is offered, then the above analysis under the first bullet applies
• a communication where the brand owner controls the content in return for payment—as soon as a payment is made by the brand, the endorsement is very likely to be considered an advertisement and will need to be disclosed as such

In practice, the administrative authority has broad discretion to interpret the payment, the content control etc. and decides on a case-to-case basis.

Types of breaches and sanctions

The sanctions for improper or inadequate disclosure of an endorsement as an advertisement, namely in situations where the advertisement is not distinguishable to the consumer or the online advertisement is not marked as ‘广告’ (‘advertisement’), are stipulated in Article 59 of CAL. This includes correction of the violation (i.e. the deletion of the endorsement or posting or editing to give clear clarification that it constitutes an advertisement) as well as the imposition of a fine of up to RMB100,000 (approximately US$15,000) on the advertisement publisher, which can be the influencer in most influencer endorsement cases.

Other breaches include:

False advertising
Pursuant to Article 56 of CAL, the influencer may be held jointly and severally liable with the advertiser (i.e. the brand in most cases) for civil liability (ie in a civil procedure started up by the victim) in two different circumstances in relation to the false advertising: in the first instance, if the products or services it endorses concern the life and health of consumers and cause harm to the consumers, the endorser may be held jointly and severally liable for such harm. It should be noted that this is a form of strict liability for the endorser, i.e. the endorser may be held liable regardless of its intentions or knowledge of issues with the endorsed product or service. In the second instance, the endorser may be held jointly and severally liable for false advertising in general, if the endorser knew or should have known that the advertisement was false.

Moreover, under Article 62 of CAL, influencers who knew or should have known that their endorsements were false, but nevertheless still made them are additionally punished by the administrative authority with confiscation of the proceeds of their endorsement, coupled with a fine fixed at an amount of the minimum amount of such proceeds and maximum two times that same amount.

The brand, as advertiser, is likely to be pursued in administrative or civil proceedings for false advertising. In case of civil proceedings, the brand is more likely to be pursued as the primary target of liability, but if the conditions for joint and several liability are fulfilled, then the influencer is also likely to be pursued by the victims.

Prohibited endorsements

Other notable prohibitions for influencers are that influencers and other endorsers may not:

• advertise medical treatments, pharmaceuticals or medical devices (Article 16 of CAL), this includes endorsing cosmetic as ‘cosmeceuticals’ or ‘medical skincare products’
• advertise ‘health food’ (Article 18 of CAL)
• recommend or demonstrate products or services that they have not used (Article 38 of CAL)
• recommend or demonstrate products or services that are not based on facts or are not in compliance with the law, ie influencers may not commit false advertising or otherwise mislead consumers (Article 38 of CAL)
• be a minor under ten years old, i.e. there is a strict age limit to influencing activities and small children are not allowed to conduct endorsement activities (Article 38 of CAL), although they can participate in advertisements as general actors

An important sanction to note for influencers is that when an administrative penalty is imposed for endorsing a false advertisement, the influencer is not allowed to serve as an endorser for three years starting from the imposition of the penalty (Article 38 of CAL).

Platform liabilities

Another key provision regarding legal liability relating to influencer‘s activities is the ‘safe harbour’ provision for internet service providers (ISPs). Both the CAL (Article 45) and the Internet Advertising Measures (Article 17) offer a safe harbour provision to ISPs. Liability for false endorsements and other false advertisements shall only be possible for ISPs who knew or should have known that false advertisements were published using its information services. This provision is of utmost importance to the platforms used by influencers to publish and divulge their messages and videos.

Regulations, codes and guidelines and key information relating to influencers

The key legislation relating to the influencer-brand relationship in China consists of the CAL and the Internet Advertising Measures, as discussed above.

Additionally, China also has specific regulations applicable to specific types of advertising activities that are particularly relevant to influencers. The most prominent and recent example is live-streaming activities, whereby products are demonstrated in real-time to consumers via social media platforms, often hosted by influencers. Live-streaming has become particularly common in China since the beginning of 2020, when many consumers had to stay indoors due to the outbreak of the coronavirus (COVID-19) pandemic. Examples of these specific regulations are the Administrative Provisions on Internet Live-Streaming Services (互联网直播服务管理规定), the SAMR Guidance on Strengthening the Supervision of Online Live Broadcast Marketing Activities (国家市场监督管理总局关于加强网络直播营销活动监管的指导意见) and the Notice of the State Administration of Radio and Television on Strengthening the Management of Online Show Live and E-commerce Live Broadcast (国家广播电视总局关于加强网络秀场直播和电商直播管理的通知), which implement significantly stricter regulation for live-streaming activities such as real name authentications, announcements of major live-streaming actions and capping the total tips by any single viewer, no tips from minors etc.

On top of these laws and regulations, advertising industry organisations are also encouraged to develop industry rules and standards, to strengthen industry self-regulation (see Article 7 of CAL and Article 4 of Internet Advertising Measures). While such rules and standards are generally non-binding, compliance is often monitored by the industry organisations and non-compliance may both be sanctioned internally and reported to the authorities. Examples of such industry rules and standards are the China Advertising Association's ‘Standards for Internet Livestream Marketing Activity’ (网络直播营销行为规范), in effect since 1 July 2020, and containing an elaborate code of conduct for endorsers conducting live-streaming marketing activities.

Oversight of influencer endorsement activities

The oversight over influencer endorsement activities is predominantly of an administrative nature and is conducted by SAMR and its local branches as mentioned above. The CAL (Article 49) and the Internet Advertising Measures (Article 19) give broad powers of administration and supervision to the SAMR and its local branches, including allowing them to:

• conduct onsite inspections of the places involved in suspected illegal advertising activities
• hear the parties involved in the suspected violations and conduct investigations into the relevant organisations or individuals
• require the parties to provide relevant supporting documents within a specified time limit
• consult or reproduce the contracts, instruments, account books, advertisements and other relevant materials relating to the suspected unlawful advertisements
• seal up or seize the advertising items, business tools, equipment or other property directly related to the suspected lawful advertisements, and
• order a moratorium on the release of the suspected unlawful advertisements that may result in serious consequences

This list of powers is not exhaustive, and other duties and powers may be granted to the SAMR and its local branches as prescribed by administrative laws and regulations. The parties have the legal obligation to cooperate with the investigations by the SAMR.

If the SAMR concludes, on the basis of its investigation powers listed above, that the influencer has committed a violation of the CAL and/or the Internet Advertising Measures, then it will generally order them to retract and/or correct the endorsement message, issue a fine and publish its penalty decision. It should be noted that SAMR penalty decisions can be appealed to the courts through administrative litigation.

Other types of enforcement of the applicable legislation, though much rarer in practice than administrative enforcement, are possible through either civil or criminal procedures. Civil litigation is mostly relevant where an influencer is subject to joint and several liability after committing false advertising with actual or purported knowledge, or after causing harm to consumers’ life or health. Criminal prosecution is also possible if the endorser’s infringements of the advertising legislation constitute a serious crime, eg in cases of criminal schemes or fraud in relation to large numbers of consumers.

Ownership of the rights to sponsored content created by influencers

Copyright is the main type of intellectual property right relevant to the sponsored content created by an influencer. The general rule under China’s Copyright Law (Article 2) is that the author of a work owns the copyright, which includes a set of assignable and licensable economic rights (eg the right of reproduction) as well as moral rights (eg the right to claim authorship), which are in principle not transferable.

Most influencer content created on assignment for a brand qualifies as a ‘commissioned work’/‘委托创作’. As a general rule, Article 17 of China's Copyright Law provides that for such works, the ownership must be agreed upon between the parties. Should the parties not have concluded an agreement, or should they not have included any provisions on the ownership of the copyright in such content, then Article 17 of the Copyright Law provides that the copyright shall vest in the creator, i.e. the influencer. It is therefore paramount for the parties to include clear-cut provisions on ownership of copyright in sponsored content.

It is also important to highlight that the use by influencers of third party works (eg images, songs, videos) in their content generally requires a licence from such third parties. While such use of third-party works may result in the creation of a new work owned by the influencer, such work will generally be considered only a ‘secondary’ or ‘derivative’ work, and its use therefore remains subject to the permission of the owner of the underlying copyright. This is illustrated by a recent judgment (Wuhan Douyu Network Technology Co., Ltd. v China Music Copyright Association) handed down by the Beijing IP Court on appeal, where the IP Court ruled that the unlicensed use of a song by an influencer during a live influencer broadcast infringed the copyright holder’s exclusive right of network dissemination.

Responses to inaccurate brand messaging, rogue behaviour and mistakes

In China, the responses to inaccurate brand messaging, rogue behavior and mistakes by influencers can be varied and depend largely on the seriousness of the inaccuracies and potential offences committed by the influencer:

• the main response is usually limited to contractual remedies by the brand and public statements issued by the brand and/or influencer. Since most influencer contracts require the influencer to uphold high standards of behaviour and to refrain from inaccuracies in their endorsements, rogue behaviour and mistakes may lead to liquidated damages being paid by the influencer, suspension and termination of the agreement with the influencer, and in serious cases even civil claims for damages by the brand. If the inaccuracies also cause damage to the brand's public image, then the brand and/or influencer often also issue a public statement or offer public apologies, often combined with a more comprehensive PR management campaign
• there could be violations of the CAL, Consumer Protection Law or other laws and regulations that may result in administrative punishment to the brand and the influencer, and
• there could also be infringement of third party’s rights which may subject the brand and the influencer to potential civil liabilities towards a third party.

Key provisions found in influencer agreements

There is no one-size-fits-all type of influencer agreement in China, and it is important for brands to enter into a clear, tailored and comprehensive agreement with their influencers, influencer management company or multi-channel network company. Some influencers may have a much stronger bargaining position in negotiating the agreement with the brand.

Generally speaking, the agreements typically at least contain the following key provisions:

• intellectual property ownership: given the fact that the default position under China’s Copyright Law is to grant ownership to the influencer in absence of provisions to the contrary, it is essential for brands to include a clear intellectual property ownership clause, covering the brand's ownership of copyrights, logos, slogans etc. used or created in the content, as well as covering the influencer's own rights, such as name, nickname, account name etc.
• portrait right: it is important for the brand instructing the influencer to include carefully crafted clauses about the influencer’s portrait right (i.e. the personality right in one’s image, allowing a person to prevent commercial exploitation of their image or likeness without permission or compensation), the permitted actions and about cross-platform posting and re-posting of the content
•  deliverables: the agreement should contain a clear section and/or schedule on concrete deliverables, ie the services to be delivered by the influencer, linked to deadlines and goals. This section may or may not be tied to the fee calculation section, depending on the fee calculation method
• fee calculation: multiple ways of calculating fees are possible, eg lump sum payments, payments dependent on the quantity of the content or on the views and popularity of the content etc. Regardless of the fee calculation method chosen, it is essential that it is simple and clear, and that it covers all relevant issues, such as tax, disbursements and other costs
• degree of exclusivity: it is advisable for the brand to indicate the level of exclusivity of the brand with the influencer (eg total exclusivity, exclusivity within the same sector, exclusivity as to certain competing brands etc)
• influencer behaviour and reputation: given that the reputation of the influencer will be essential to the brand and its consumers, the brand will need to include a clause covering maintenance of a standard of behaviour and reputation. This may be linked to the termination clauses, giving the right to terminate the brand in case the influencer becomes involved in a public scandal or otherwise badly reflects on the brand's reputation
• pre-publication review and post-publication takedown: most often (except for instance in live-streaming agreements), brands will want to reserve the right to review and approve publications by influencers before they are divulged. It is essential for the brand to retain the right to demand alterations and/or retractions or deletions of publications
• representations and warranties: representations and warranties should be included, eg regarding no infringement of third-party rights, regarding having obtained all necessary permits and licences to conduct the influencer activities etc
• Multi-Channel Network (MCN) specific clauses if MCN-related contract: should the brand hire influencers through an MCN, then a number of MCN-specific clauses should be included, eg selection of influencers, degree of control over influencers, direct relation with influencers etc
• liquidated damages: depending on the bargaining position of the parties, certain clauses could also include liquidated damages, which would additionally provide the brand with a strong deterrent against rogue behaviour by the influencer
• term and termination: the term and termination clause should include a clear standard term, possibilities for the brand to extend or shorten the term and set out clearly the right of the brand to terminate the agreement with immediate effect for serious breaches, including reputational damage caused by the influencer, unpermitted publications etc

This note was prepared for Lexis PSL, and the original publication can be found here.

Authored by Grace Guo and Stefaan Meuwissen.