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Legal: Discussion on Legal Issues of Internet Advertisement from the Perspective of E-commerce
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Discussion on Legal Issues of Internet Advertisement from the Perspective of E-commerce

By Manuel Torres (Managing Partner of Garrigues China), Rachel Zhou (Corporate Associate)

BT 201609 120 01 LegalEver since the arrival of the 21st century, mankind has entered the Internet era. The popularity of the network has not only speeded up information dissemination, but also promoted rapid development of e-commerce. According to the UN estimates, 1/3 of international trade around the world will be completed through the Internet during the next decade. And Internet advertising plays an indispensable role in e-commerce.

1. Introduction to Internet Advertising

Literally, Internet advertising refers to advertismeants being released on the Internet. In essence, Internet advertising is a new advertising-operating mode to use advertising space, text links or multimedia on websites to publish or release advertising on the Internet, and use the Internet as a new media to disseminate information to users. Compared with the traditional newspaper advertising, magazine advertising, TV advertising and radio advertising, Internet advertising enjoys unique advantages, such as a wide range of audiences, strong interaction, high time sensitivity, flexibility and low costs.

BT 201609 120 02 Legal ecomchallenges2. Development history of the Internet advertising

In history, Internet advertising has undergone 3 stages of development. The first stage was the rudimentary stage of Internet advertising. In 1900, Prodigy in the United States became the world's first enterprise which attempted to provide Internet advertising services. At the second stage, Internet advertising suffered a setback. Canterior and Siegel, two lawyers of Arizona, repeatedly published an advertisement concerning green-card services, but the advertisement aroused great resentment of users and produced poor marketing results. At the third stage, Internet advertising has developed and become mature. In 1994, Hot Wired in the United States published Internet advertisements for AT&T and other 13 companies, and won recognition from the audience. Since then, Internet advertising has gradually embarked on the set track. In 1997, the first piece of commercial Internet advertising appeared in China. Intel and IBM are the earliest advertisers in China. In the Chinese market, the first Internet marketing appeared in form of 468x60 pixels animated banner ads. After years of explorations and tests in practice, the Internet advertising industry has been gradually maturing in China.

3. Important role of the Internet advertising in e-commerce

E-commerce refers to the new commercial model which is based on the Internet, takes two parties of transaction as the subject, adopts banking e-payment and settlement and relies on customer data and information. Along with its rapid development, e-commerce has changed the traditional trading modes, provided business opportunities to operators, and brought convenience to consumers. According to UN estimates, 1/3rd of international trade around the world will be completed through the Internet in the next decade. E-commerce will become an important part of the trading environment under the new context. However, Internet marketing is indispensable in e-commerce. Along with the continuous development of e-commerce trading model, a new way of advertising has been created. Internet advertising has developed into a major source of revenue for many websites, and the scale of Internet advertising has expanded with every passing year. According to financial reports disclosed by enterprises, industry interviews and iResearch estimates, the size of Chinese Internet advertising market will reach 285.2 billion yuan in 2017, with an increase of 17.8% over 2016.

4. Legal issues of Internet advertising under the e-commerce model

In the context that e-commerce has developed constantly, Internet advertising, as an emerging industry, faces a series of legal issues in practice, which are mainly reflected by the following aspects.

4.1 Difficulty in distinguishing pure information dissemination from Internet advertising

In Article 3 of the "Interim Measures for the Administration of Internet Advertising", it is clearly defined as "commercial advertising released through websites, webpage, Internet applications and other Internet media to directly or indirectly recommend products or services in text, image, audio, video or other forms". However, in actual operation, it is quite common that advertising information is included in slogans, factual narration and essays for praising, owing to the diversity of network communication and the admixture of false and true information on the Network. Therefore, there is difficulty in distinguishing pure information dissemination from Internet advertising.

BT 201609 120 04 Legal4.2 Difficulty in determining legal liability owing to fuzzy positioning of the advertiser, advertising operator and advertising publisher

In the "Advertising Law of the People's Republic of China", clear definitions are given to the advertiser, advertising operator and advertising publisher of traditional media advertising. However, before July 2016, positioning of the advertiser, advertising operator and advertising publisher was unclear. For example, the ISP (Internet Service Provider) and ICP (Internet Content Provider) serve as the advertising agent, advertising maker and advertising publisher. In this case, it is difficult to apply concepts and standards in existing laws to comprehensively understand and regulate the advertiser, advertising operator and advertising publisher in Internet advertising. In addition, many enterprises build their own homepages or websites for publicizing or releasing advertising, which poses new challenges to determine legal liabilities.

4.3 Difficulty in administrating Internet advertising: easily triggering conflicts of jurisdiction

Because distributors and distribution channels of Internet advertising are diversified and wide-ranging, there is difficulty in the administration of Internet advertising. Moreover, the spread of Internet advertising is not subject to time and space limits, which usually leads to conflicts between application of law and jurisdiction. At present, traditional media advertising of China is generally regulated by the domestic law, while cross-border advertising is administrated by law of China or other countries. Conflicts of legal applicability rarely occur. However, Internet advertising may touch upon more than one country, and contents of Internet advertising are hard to separate. Worse still, various countries bear some differences in legislation, so it is difficult to apply some foreign laws in China. As a result, some Internet advertisers and advertising publishers deliberately use this loophole to circumvent the law and publish illegal Internet marketing.

4.4 Acts of unfair competition

Acts of unfair competition refer to acts of two or more producers or traders for competitive purpose and in violation of the principle of good faith or recognized business ethics to hurt interests of other competitors of other competitors or consumers and disrupt the social and economic order, and for which, producers or traders should bear legal liability. Acts of unfair competition in Internet advertising mainly include: Internet bait advertising, price fraud, misuse of keywords, application of linkage technology, plagiarism and information dissemination of prize-giving sales.

4.5 False Internet advertising

BT 201609 120 02 LegalWhile bringing considerable economic benefits, Internet adverting, spurred by e-commerce, also brings problems. False advertising is one of the problems. False advertising refers to advertising which is false or misleading. As one kind of false advertising, advertised items are not consistent with actual items provided. As the other kind of false advertising, advertising information misleads consumers to produce wrong associations for items advertised, thus affecting their purchasing decision-making. False advertising is usually inconsistent with facts, ambiguous in meaning and misleading. For example, on the outer packaging of the product Jianyi PM2.5 protective mask, it is declared that "with the upgraded micro-filtration technology, this protective mask can effectively block PM2.5 in air ( a PM2.5 filtration rate of over 99%) and effectively block virus in air (a virus filtration rate of 99.9%). However, according to test results, the Jianyi protective mask did not reach a filtration rate declared in its advertising, so it was liable to a fine of 100,000 yuan.

4.6 Fraud Internet advertising

Advertising Fraud refers to the act that the advertiser, advertising operator and advertising publisher deliberately create a false impression of advertised goods or services, or conceal the truth, which may mislead consumers to make wrong consumption decisions. Virtuality of the Internet has promoted development of fraud Internet advertising. However, the imperfect market regulatory mechanism of Internet marketing makes it difficult to supervise fraud Internet adverting. Fraud advertising directly hinders the development of Internet advertising and even e-commerce, causes damage to legitimate interests of other operators and consumers, leads to distrust over Internet advertising, hurts foreign exchange and cooperation of China. For example, a domestic group-purchasing website published an advertisement that consumers can buy iPhone6 with just 1380 yuan. Mr Liu purchased an iPhone 6 through this website, but the phone turned out to be a fake.

4.7 Abuse of the celebrity image in Internet advertising

With high visibility, celebrities hold a great affinity and persuasiveness on consumers. Goods, which are recommended and publicized by celebrities, are more easily accepted by consumers. Celebrity advertising produces better effect of publicity. Therefore, at present, many companies take advantage of high visibility of celebrities, to expand the public awareness of their products. It should be noted that when using celebrity image in Internet advertising, companies must first obtain the consent of the celebrity, or it would violate the right of portrait and would be deemed to be an unlawful act. At present, with no adequate financial support, some small and medium Chinese websites use portraits of celebrities for publicizing enterprises or products without content or authorization, in order to expand their influence and obtain maximum economic benefits.

4.8 Infringement of consumers' rights and interests in Internet advertising

BT 201609 120 03 LegalDriven by economic interests, some unscrupulous businesses use e-commerce loopholes to deceive consumers through virtual space of the Internet. Internet advertising's violation of consumer rights and interests is mainly reflected by the following two aspects. On one hand, Internet advertising violates consumer privacy. For example, some Chinese websites do not effectively protect transaction and personal information of consumers, or even sell information to other websites or individuals. On the other hand, consumers are annoyed by spam advertising harassment. Since e-mail can be automatically forwarded and its cost is low, some businesses use e-mail for Internet advertising and constantly send spam e-mails to consumers, thus causing lot of annoyance.


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