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.

Although the embedded ad has some false content in and of itself, it will not be recognized as false advertising if the relevant public, on the basis of daily experiences, advertising characteristics of the industry and the general attention, can spot the false information and will not have misunderstanding.

The purpose of an embedded ad is to create interest in consumers, who were not previously interested in a brand or business, for the brand or business after watching the TV show so as to stimulate their potential purchasing urge, thus capturing more commercial opportunities for the business. An ad has many elements, some of which play an important role in attracting consumer’s attention, while others are insignificant. For jewelry advertising, the style is usually the most eye-catching element. In a typical jewelry ad, either a static image ad or a dynamic heroine and tightly framed in a close-up, and the audience could clearly see the “CRD” logo and the pendant which was identical with “Angel’s Wings” of plaintiff. The two defendants argued that the two sides only agreed that the crew shot the store with the “CRD” logo and added subtitles at the end of the show, and did not agree on the plot of presenting the necklace. However, in terms of the plotting, My Daughter could merely shoot the Zhuomei store and add subtitles at the end to help Zhuomei promote its brand under the aforesaid agreement. Even for the sake of plotting, in framing the scene of giving the necklace and asking the heroine to put it on, it is utterly unnecessary to display the jewelry box with “CRD” logo and clearly exhibit the “CRD” brand in a close-up. Therefore, in terms of plotting, the presentation of the box with “CRD” logo and the way thereof has not been a must for the plot.

As regards the third factor, the plot which caused public misunderstanding and was suspected of false advertising mainly involves giving the necklace with the pendant at issue from the hero to the heroine. At the beginning, My Daughter framed in a close-up the jewelry box with the prominent “CRD” logo, and framed also in a close-up the pendant identical with the “Angel’s Wings” in the style from plaintiff after the box was opened, besides, the close-up lasted for 4 seconds or so. Later on, the necklace was worn around the neck of the heroine and the shape of the necklace was also clearly visible. If the aforesaid plot was taken out, it would have almost the same pattern as a jewelry ad, utterly constituting an independent ad for the “CRD” brand. Judging from the perspective of a reasonable person, it will be sufficient to enable the audience to pay attention to the “CRD” brand and associate it with the necklace at issue, enabling, in conjunction with the site of the shooting and advertising words at the end of the show, the audience to regard the plot as embedded advertising for “CRD” brand.

Based on the above, the plot at issue constituted embedded advertising for the “CRD” brand.

II. Determination of false advertising

Article 9 of the Anti-unfair Competition Law provides that a business may not, by advertising or otherwise, make false or misleading advertising of their goods as to quality, ingredients, functions, usage, producers, duration of validity or origin. An advertising agent may not act as an agent for, or 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. Although the embedded ad has some false content in and of itself, it will not be recognized as false advertising if the relevant public, on the basis of daily experiences, advertising characteristics of the industry and the general attention, can spot the false information and will not have misunderstanding.

The purpose of an embedded ad is to create interest in consumers, who were not previously interested in a brand or business, for the brand or business after watching the TV show so as to stimulate their potential purchasing urge, thus capturing more commercial opportunities for the business. An ad has many elements, some of which play an important role in attracting consumer’s attention, while others are insignificant. For jewelry advertising, the style is usually the most eye-catching element. In a typical jewelry ad, either a static image ad or a dynamic television ad will highlight the style of a pendant necklace, earring or bracelet. Some also have pictures of a star wearing the jewelry to enhance the advertising effects. Therefore, the style of the jewelry in an ad plays an extremely important role in the relevant public and is an important tool to attract public attention and rapidly enhance the public perception of a brand. In this case, the pendant identical with plaintiff’s “Angel’s Wings” appeared simultaneously with the “CRD” brand in the same plot and scene, subsequently was worn on the heroine’s neck, which was almost the same as common jewelry ads. Thus it is sufficient for the public to pay attention to the pendant and arouse an interest in the CRD brand, attracting the public to further understand the brand or purchase the product, thus creating real or potential business opportunities for Zhuomei. Arguments of Zhuomei in court also show that many consumers had called to ask for information or to purchase the jewelry after the TV show was aired. Therefore, it can be seen that the plot at issue has attracted many consumers for Zhuomei which has gained commercial interests from the embedded advertising. This was a successful embedded ad, but the problem is that the pendant necklace, which has aroused public attention, was not designed, manufactured or sold by Zhuomei. In other words, the main eye-catching element did not belong to Zhuomei, but the TV show had used it together with the jewelry box with the “CRD” brand, making it sufficient for the audience to mistakenly think that the “Angel’s Wings” pendant was designed, manufactured or sold by the business with the “CRD” brand. Because of the improper use of the disputed pendant and the “CRD” jewelry box in the embedded advertising, Zhuomei has gained commercial opportunities which had not belonged to it otherwise, thus constituting false advertising.

III. Liability of false advertisement producers and advertisers

Plaintiff and defendant B were both retailers of jewelry products, in competition with each other.

Plaintiff, as the copyright owner of “Angel’s Wings” pendant artwork, had the right to incorporate the artwork into jewelry products and make profits. The embedded ad at issue has made an objective use of plaintiff’s jewelry style to promote Zhuomei brand, inevitably having an impact on the competitive advantage of plaintiff’s jewelry style. The relevant public may mistakenly believe that plaintiff’s jewelry was modeled after that of defendant B, thus harming the legitimate interests of plaintiff and constituting unfair competition.

In this case, Syndication was the producer, publisher and copyright holder of My Daughter, also the producer and publisher of the embedded ad at issue. The company, knowing that the pendant at issue had nothing to do with defendant B, used the pendant together with the jewelry box with the prominent brand logo of defendant B, resulting in misunderstanding, harming the legitimate interests of plaintiff. Therefore, the company should bear corresponding civil liability.

False advertising does not require advertisers to be intentional; negligence can also lead to false advertising. Advertisers, as beneficiaries of embedded advertising, should assume liabilities resulting therefrom. Even though defendant B did not actively participate in designing of the plot at issue, it had established advertising privity with the show crew, knowing the show would promote its brand. Defendant B provided the jewelry box to the crew for use where appropriate, so it should have foreseen the box would be used to promote its brand in the show and should carry its duty to exercise reasonable care as to the content and consequences. Although defendant B did not subjectively intend to mislead consumers, it objectively caused misleading results and received commercial benefits that would not have belonged to it otherwise. Therefore, it should bear civil liabilities.

Conclusion

As embedded advertising has been gaining popularity nowadays, businesses and TV program producers should clearly understand embedded advertising is not a win-win act without any risk or liabilities. The ruling of this case above will help guide businesses and producers to incorporate advertising into TV shows in a careful and responsible manner, in an effort to maintain artistic features of audio-visual and cultural works, protect consumer rights and legitimate rights and interests of other businesses.

(Translated by Wang Hongjun)