Case Nos.
First Instance: (2011) PuMinSan (Zhi) Chu Zi No. 694
Second Instance: (2012)HuYiZhongMinWu (Zhi) ZhongZi No. 212
Facts:
Plaintiff: Kela Company
Defendant A: SyndicationCompany
Defendant B: Zhuomei Company
Synopsis
Determination of whether a particular scene in a television program is embedded advertising should be made by the standard of whether collaborative relationship exists between an advertiser and the program producer, whether the relevant sector of the public could have, as a reasonable person would, perceived the embedded advertising as shown in the scene, and whether the presentation and the manner presenting the stage properties carrying commercial information were required for the plot. Determination of unfair competition by false advertising in the embedded contents should be made in combination with ordinary experience, characteristics of advertisement in the relevant trade, and the general attention of the public for such advertisement. If the contents susceptible of false advertising are such as to form an interest in targeted goods or services among the public who might not otherwise have such an interest, likely to bring present or future business opportunities to the advertiser, resulting in damages the legitimate interests of other business operators, it should be concluded that unfair competition of false advertising exists.
Both plaintiff and defendant B are in the business of jewelry products. Plaintiff designed, produced and sold the “Angel’s Wings” pendant necklace and obtained copyright registration for it. The pendant was shaped as a pair of wings which may be set as face-to-face, back-to-back or vertical by threading the holes in the wingtips in different ways. Defendant A was the producer and copyright holder of the TV series My Daughter and assumed the rights and obligations thereof.
In July 2010, the two defendants agreed that the TV show crew would use the premises of defendant B’s Xiamen store in the shooting free of charge, in exchange for free advertisement of brand promotion. In the shooting, the crew asked for a jewelry box with defendant B’s English brand name “CRD,” informed the store of future use of the box as a prop where necessary in the show, but the crew did not specify any detail. Later the crew bought from a third party (not plaintiff nor its affiliate) a necklace identical with plaintiff’s “Angel’s Wings” and put it in the box for the shooting. In My Daughter aired publicly, the hero and his mother shopped for jewelry in a store with prominent display of Zhuomei “CRD Kelaidi.” … In the home of Xia, the hero gave the necklace as a gift to the heroine. The necklace was highlighted for 4 seconds in a close-up after the box was opened. Later, the hero put the necklace around the neck of the heroine and the shape of the necklace was clearly visible. “CRD Kelaidi” also showed up in the credits at the end of the show. After the public airing of the show, some consumers phoned defendant B for information about the necklace.
Plaintiff argued that the two defendants made false advertising and an act of unfair competition in bad faith and sued in the Pudong court, demanding a court order of public apology, economic compensation of 150,000 yuan in damages, and reasonable expenses of 7,521 yuan for the effort of enjoining infringement.
Trial
At trial, Shanghai Pudong New Area People’s Court found that the two defendants have in effect formed collaborative relationship for advertisement; that the aforesaid footage of My Daughter was embedded advertising in the TV program for the Zhuomei brand; that the unique pendant styles can attract consumer attention, and improve brand appeal; that the pendant at issue was not produced or sold by Zhuomei, but the pendant in the embedded ad was used together with the jewelry box with the obvious Zhuomei logo and the closeup lasted for some time, which is likely to mislead a relevant sector of the public into believing that the style was designed or sold by Zhuomei, which in turn, aroused their interest in the Zhuomei brand, bringing more business opportunities for Zhuomei; and that it was, therefore, an act of unfair competition against plaintiff. Based on the above, the first-instance court ruled for joint and several liability against the defendants and awarded 20,000 yuan in compensation and 7,521 yuan for reasonable expenses. Zhuomei appealed. Plaintiff and the two defendants settled during appeal, and the case was withdrawn.
Comments
This case relates to unfair competition of false advertising arising from embedded advertisement in a TV program. Currently it is a common practice for TV show producers to incorporate ads into TV programs in order to save money or raise funds. Businesses also take an active attitude in this new marketing model in order to expand brand awareness. China Advertising Law is currently silent on embedded advertising, and there is certain controversy as to determination of plots in TV programs as embedded advertising, whether embedded ads are commercials and corresponding liabilities against businesses and program producers as a result. This case has made useful explorations into the aforesaid issues with the view of providing some reference for future adjudication of similar cases.
I. Nature and identification of embedded advertising in TV programs
It is inevitable for TV programs to display some products with commercial attributes in order to reproduce lifelike scenes. While embedded ads are often integrated into plots of the programs, and the contents of the ads, which are often “hidden,” usually serve as props, background or lines presented to the audience. The primary issue in the adjudication of embedded advertising cases relates to how to distinguish uses of props either as embedded advertising or rational use.
For purposes of China Advertising Law, advertisement refers to commercial placement paid for by a business operator, or a service provider, that directly or indirectly promotes, through certain medium or channel, goods or services to be provided. The media of the placement may take various forms, either in writing or in graphics, static or dynamic. The following factors may be considered in determining whether a plot of a TV show constitutes embedded advertising: (1) whether the business and the show producer have had collaborated in advertising; (2) whether presentation of information with commercial elements and the way thereof has been necessary for the plot; (3) whether the relevant public can identify a footage as embedded advertising from the perspective of a reasonable person. If a plot meets the above three factors, it can be determined as embedded advertising. Such details as whether the business and the program producer have formally signed a contract for the embedded advertisement, whether the business has paid for the advertisement, or whether both sides have agreement specifically discussing the plot for the embedded advertisement, does not affect the conclusion of the nature of embedded advertising.
The first factor, agreement between a business and the show producer on embedded advertising or brand promotion is the premise and foundation for determining collaborative relationship between the two sides. In this case, the two defendants did not sign a written contract, but merely reached a verbal agreement by which Zhuomei provided shooting premises for Syndication Company that in return promoted Zhuomei brand in the show, which does not affect a finding of the nature of embedded advertising. Despite the absence of a written contract, the two defendants have actually formed collaborative relationship in which Zhuomei was the advertiser, and Syndication the advertising agent. Even though the Advertising Law defines advertisement in necessary part as “having been paid for by business operator or a service provider,” it cannot literally be read to mean that a TV show producer must collect payment in dollar amount from the advertiser. In fact, it is not infrequent that the advertising fee is dropped due to exchange of certain mutual considerations, which cannot serve as a basis to deny the existence of the advertising collaborative relationship. The State Administration for Industry and Commerce (SAIC) once pointed out in Reply to the Question Concerning Determination of Medical Advertisement Released in the Form of Infomercials, that a medical advertisement shall be deemed to exist where a report on a particular medical establishment is published in the mass media while an advertisement of such an establishment is released through the same media and in the same time slot, even if the publisher claims to have charged no fees. SAIC further confirmed, in its Reply to the Question Concerning Whether Publication of Information Introducing or Promoting Commercial Goods In Paid Programs Should Be Deemed as Advertisement, that advertisement should be deemed to exist where a news media, for purposes of introducing or promoting goods or services, publishes information introducing or promoting goods or services in its paid programs, even though the media waives advertising fees due to a variety of reasons or reciprocates or compensates by other agreed terms. In this case, although Zhuomei did not pay advertising fees to Syndication, it waived charges of use of the site from Syndication. The advertising fees and site charges so waived may be regarded as consideration for both sides; therefore, it is sufficient to establish the advertising relationship between the two sides.
According to Article 13 of the Advertising Law, an advertisement shall be distinguishable, and be discernable to consumers as such. An advertisement published through the mass media should have a tag to distinguish it from other non-advertising information. Due to its integration with plots of a show, it is difficult to add an ad tag to each embedded plot, therefore, it has been the main way to identify the advertiser in the credits at the beginning or end of the show. My Daughter promoted the Zhuomei brand in the show and identified the ad for Zhuomei in the acknowledgment section at the end of the show, a reflection of the advertising relationship.
As regards the second factor, My Daughter presented the jewelry box with prominent “CRD” logo and the pendant at issue to the audience in the same plot, the pendant was worn by the design, produce or release, a false advertisement while it knows or should have known its falsehood. The nature of false advertising is that it misleads. Since an embedded ad is integrated with plots of a show, there are circumstances of inconsistencies with facts where there are needs for artistic expressions. In determining whether the embedded ad constitutes false advertising, a reasonable balance should be struck between encouraging creations, protecting the legitimate rights and interests of competitors and those of consumers. On the one hand, it is necessary to encourage creations and protect reasonable use of props to avoid categorizing all information with commercial elements into false advertising. On the other hand, it is necessary to regulate embedded advertising in TV shows to enable both advertisers and advertising agents to exercise caution to prevent embedded advertising from harming the legitimate rights and interests of competitors and consumers as a result of intent or negligence. In specific cases, factors, such as daily experiences, advertising characteristics of the relevant industry, general public’s attention to the types of ads, actual misunderstanding and the actual condition of the advertised object, may be addressed to determine whether it is sufficient for the false advertising to cause public misunderstanding, and whether the public will show an interest in the product or service directed by the advertising due to misunderstanding, thus bringing real and potential commercial opportunities to the business.
