Moreover, the promulgation of the amendments to the PRC Law on the Protection of the Rights and Interests of Consumers (Consumer Protection Law)—and its draft Implementing Regulations published for consultation in August 2016—and the increasing assertiveness of Chinese consumers and the various new strict regulations applicable to the internet mean that companies now need to tread more carefully than ever, and review whether their online activities are consistent with these new consumer protection and advertising rules.

PwC Hong Kong forecasts global internet advertising revenue will grow from $135 billion in 2014 to $240 billion in 2019. China's online advertising market, the largest in Asia and the second-largest in the world after the U.S, is predicted to double from $17 billion to $34 billion over the same period. It is the fastest-growing in the world, and paid search advertising captures 42% of the country's total internet advertising revenue.

Clamping down on internet advertising

The legal basis for the Tentative Measures is Article 44 of the Advertising Law (which says its provisions “apply to the use of the internet to engage in advertising activities”). The Tentative Measures are largely modelled on a consultation draft first published in July 2015.

It is also worth noting that the new rules are titled “Tentative Measures”. According to the SAIC, the title is meant to reflect the fast-changing practices in online advertising in China, which means that these rules may be revised from time to time to reflect and regulate new developments.

Scope of application

Similar to other recent rules regulating the internet, the Tentative Measures cast a very wide net in terms of regulated activities. They apply to all online advertisements, whether for goods or services, whether conducted via websites, emails, mobile applications and so forth, and whether in the form of words, images, audio, video or in other formats. Content with hyperlinks to these advertisements, as well as paid search results, will also fall within the regulated scope of the Tentative Measures.

The potential geographical scope of the Tentative Measures is also extensive, although they remain unclear on this point. Arguably, foreign businesses will need to comply with the Tentative Measures as long as their advertisements target mainland China in some way (as opposed to advertisements that are simply posted on a global or foreign website with no specific targeting). This means that, as a general rule, all companies with a website hosted in China or using PRC-specific online advertisements (including online promotion channels widely used in the mainland), or online advertisements in simplified Chinese characters (thus suggesting that a PRC audience is being targeted and that the contents will be readily understandable by the Chinese public and, importantly, Chinese officials) may need to comply with the Tentative Measures. The fact that a company has a physical presence in China may also increase the likelihood of enforcement.

Paid search results and ad-word purchasing

Consistent with the July 2015 draft, the Tentative Measures expressly categorize paid-for search engine listings as advertisements under their regulation.

They also state that there must now be a clear visual distinction between paid-for search results and normal 'natural' search results. This is consistent with the new Provisions for the Administration of Internet Information Search Services (Internet Search Provisions), issued by the Cyberspace Administration of China and effective August 1, 2016, which require search engines to examine the capacity and qualifications of customers who pay for sponsored search results, to apply a maximum percentage of paid-for search results, and to also clearly indicate and distinguish between paid-for and normal search results.

These rules have a strong impact on the legality of keyword or ad-word purchasing, especially when the keywords in question are trademarks registered by competitors. These practices have given rise to extensive debate and litigation, particularly in the EU. Under the new rules contained in the Tentative Measures and the Internet Search Provisions, search engines will need to initially examine the capacity of the company purchasing the keyword, which should in principle exclude the possibility of them purchasing their competitors' trademarks as search engine keywords. On the other side of the coin, these new rules could be leveraged by intellectual property owners to stop the unauthorized use of their trademarks as search engine keywords in China.

Mark your ads

The Tentative Measures state that all online advertisements must be clearly marked as “广告” (“advertisement” in Chinese).

This somewhat rigid requirement appears to apply to all forms of online advertisements. This means that even advertisements in foreign languages or which are obviously commercial advertising would still have to be marked as such. It remains to be seen how strictly this requirement will be enforced, but in a recent interview, the SAIC indicated that they expect all online advertisements to comply from September 1, 2016. This may be one way in which users could try to block “spam” which is not so identified, by pointing out the fact that the message is illegal and threatening to report the same.

Non-compliance with this requirement is punishable with a fine of up to Rmb100,000 ($15,000).

Medical ads and others

In line with the tightened requirements under the new Advertising Law, the Tentative Measures expressly prohibit outright online advertisements in relation to certain sensitive categories of goods and services, such as prescription drugs and tobacco. They also require some other categories to only be advertised where the advertisement has been pre-approved by the relevant Chinese authorities. Product classes falling into the latter category include medical advertisements (e.g. advertisements for clinical treatment, drugs, medical devices, and so forth), agricultural chemicals, veterinary drugs and health foods.

No hidden ads

Consistent with the Advertising Law and the increasing focus on data privacy by the Chinese government in recent years, the Tentative Measures prohibit the inclusion of advertisements (or hyperlinks to advertisements) in emails to users without their consent. The Tentative Measures remain silent on whether this requires the users' opt-in or opt-out type of consent.

The Tentative Measures also reiterate the principle under the Advertising Law that online advertisements must not interfere with people's normal usage of the Internet—hence the requirements that pop-up ads must be capable of being closed by one single “click” and that users must not be deceived into clicking on hidden advertisements.

Other prohibited acts

The Tentative Measures also prohibit certain activities relating to online advertising that may be seen as forms of unfair competition, such as:

• Providing or using applications, hardware, etc. to block, filter, skip over, tamper with, or cover up lawful advertisements provided by others;
• Using network access, network equipment and applications to disrupt the normal transmission of other lawful advertisements provided by others, or adding or uploading advertisements without permission;
• Harming the interests of others by using fake statistics or traffic data.

Role of ICPs

Internet content providers (ICPs) (basically website operators in the Chinese context) may wear multiple hats in the online advertising context.

On one hand, ICPs publishing their own advertisements or engaging in online advertising services will be subject to the legal requirements applicable to traditional advertisers and publishers of advertising.

On the other, under the Tentative Measures, even if they are only involved in providing Internet content services and do not provide advertising services, ICPs will be required to stop unlawful advertisements if they know or ought to know about the publication of unlawful advertisements through their website. This can be quite an onerous obligation.

Online business strategies

Companies need to review their advertising practices and online presence in China to ensure compliance with the Tentative Measures, the new Advertising Law and the range of new internet regulations, especially in light of the potential surge of regulatory enforcement and consumer complaints that are likely to follow in their wake.

It is, in particular, advisable to:

• Be alive to and prepared for increasing awareness and sensitivity among the Chinese public, leading to a rise in consumer (or competitor) complaints and regulatory enforcement on the back of this—even for minor or technical breaches.
• Implement a thorough internal policy review of online advertisement checks and reviews—especially for content that originates from outside China that may be culturally or politically sensitive, covering all existing marketing channels in China, e.g. mobile platforms, via SMS or email.
• Develop a China online advertising strategy taking into account the new Tentative Measures as well as the new and restrictive online publishing and domain name rules etc.
• As for ICPs that are not as heavily regulated in other markets—beware of the 'multiple hats approach' and the need to implement corresponding policies and changes to terms for clients placing advertising. Monitoring will need to be stepped up of all advertisers on an ongoing basis.

China has taken a long time to get there, but it is abundantly clear from the amendments to its Cybersecurity Law, Consumer Protection Law, Advertising Law and the promulgation of the Tentative Measures that it is getting serious about regulating this space.

Only time will tell how rigorously these rules will be enforced in practice, but businesses (whether on the client or advertiser side of the equation) need to take note and carry out a thorough review of all their processes and procedures to avoid getting caught up in complaints that may impact their businesses and give rise to regulatory issues going forward.

Eugene Low, Partner, Hong Kong, and
Stefaan Meuwissen, Professional Support Lawyer, Beijing,
Hogan Lovells

Internet advertising has become big business in China, but was recently dogged by controversy. Earlier this year, the tragic death of a young student with cancer who used an online search engine to look for a last-resort medical treatment and was given experimental, untried treatment by an institution that appeared as the top search result caused public outrage, prompting an official crackdown on alleged manipulation of search results. Notwithstanding further tightening of regulation of the sector under the PRC Advertising Law, stricter rules were already expected in this area.

On July 4, 2016, the State Administration of Industry and Commerce (SAIC) released the Tentative Measures for the Administration of Internet Advertising (Tentative Measures), which came into effect on September 1, 2016.

The Tentative Measures provide detailed implementing measures for the provisions in the new Advertising Law (which took effect on September 1, 2015) that address the online environment. These are the first set of national rules specifically regulating advertising activities through the internet and other online media.

The Tentative Measures also fit the Chinese's government's objective—underlined by President Xi Jinping in his keynote speech at the World Internet Conference in Wuzhen in 2015—to make the Chinese internet, and ICT-technology in general, more “secure and controllable”. Examples of other legislative initiatives consistent with this goal include the recent PRC Anti-terrorism Law, PRC National Security Law, Provisions for the Administration of Online Publication Services and the draft PRC Cyber Security Law and the draft Measures for the Administration of Internet Domain Names.

Moreover, the promulgation of the amendments to the PRC Law on the Protection of the Rights and Interests of Consumers (Consumer Protection Law)—and its draft Implementing Regulations published for consultation in August 2016—and the increasing assertiveness of Chinese consumers and the various new strict regulations applicable to the internet mean that companies now need to tread more carefully than ever, and review whether their online activities are consistent with these new consumer protection and advertising rules.

PwC Hong Kong forecasts global internet advertising revenue will grow from $135 billion in 2014 to $240 billion in 2019. China's online advertising market, the largest in Asia and the second-largest in the world after the U.S, is predicted to double from $17 billion to $34 billion over the same period. It is the fastest-growing in the world, and paid search advertising captures 42% of the country's total internet advertising revenue.

Clamping down on internet advertising

The legal basis for the Tentative Measures is Article 44 of the Advertising Law (which says its provisions “apply to the use of the internet to engage in advertising activities”). The Tentative Measures are largely modelled on a consultation draft first published in July 2015.

It is also worth noting that the new rules are titled “Tentative Measures”. According to the SAIC, the title is meant to reflect the fast-changing practices in online advertising in China, which means that these rules may be revised from time to time to reflect and regulate new developments.

Scope of application

Similar to other recent rules regulating the internet, the Tentative Measures cast a very wide net in terms of regulated activities. They apply to all online advertisements, whether for goods or services, whether conducted via websites, emails, mobile applications and so forth, and whether in the form of words, images, audio, video or in other formats. Content with hyperlinks to these advertisements, as well as paid search results, will also fall within the regulated scope of the Tentative Measures.

The potential geographical scope of the Tentative Measures is also extensive, although they remain unclear on this point. Arguably, foreign businesses will need to comply with the Tentative Measures as long as their advertisements target mainland China in some way (as opposed to advertisements that are simply posted on a global or foreign website with no specific targeting). This means that, as a general rule, all companies with a website hosted in China or using PRC-specific online advertisements (including online promotion channels widely used in the mainland), or online advertisements in simplified Chinese characters (thus suggesting that a PRC audience is being targeted and that the contents will be readily understandable by the Chinese public and, importantly, Chinese officials) may need to comply with the Tentative Measures. The fact that a company has a physical presence in China may also increase the likelihood of enforcement.

Paid search results and ad-word purchasing

Consistent with the July 2015 draft, the Tentative Measures expressly categorize paid-for search engine listings as advertisements under their regulation.

They also state that there must now be a clear visual distinction between paid-for search results and normal 'natural' search results. This is consistent with the new Provisions for the Administration of Internet Information Search Services (Internet Search Provisions), issued by the Cyberspace Administration of China and effective August 1, 2016, which require search engines to examine the capacity and qualifications of customers who pay for sponsored search results, to apply a maximum percentage of paid-for search results, and to also clearly indicate and distinguish between paid-for and normal search results.

These rules have a strong impact on the legality of keyword or ad-word purchasing, especially when the keywords in question are trademarks registered by competitors. These practices have given rise to extensive debate and litigation, particularly in the EU. Under the new rules contained in the Tentative Measures and the Internet Search Provisions, search engines will need to initially examine the capacity of the company purchasing the keyword, which should in principle exclude the possibility of them purchasing their competitors' trademarks as search engine keywords. On the other side of the coin, these new rules could be leveraged by intellectual property owners to stop the unauthorized use of their trademarks as search engine keywords in China.

Mark your ads

The Tentative Measures state that all online advertisements must be clearly marked as “广告” (“advertisement” in Chinese).

This somewhat rigid requirement appears to apply to all forms of online advertisements. This means that even advertisements in foreign languages or which are obviously commercial advertising would still have to be marked as such. It remains to be seen how strictly this requirement will be enforced, but in a recent interview, the SAIC indicated that they expect all online advertisements to comply from September 1, 2016. This may be one way in which users could try to block “spam” which is not so identified, by pointing out the fact that the message is illegal and threatening to report the same.

Non-compliance with this requirement is punishable with a fine of up to Rmb100,000 ($15,000).

Medical ads and others

In line with the tightened requirements under the new Advertising Law, the Tentative Measures expressly prohibit outright online advertisements in relation to certain sensitive categories of goods and services, such as prescription drugs and tobacco. They also require some other categories to only be advertised where the advertisement has been pre-approved by the relevant Chinese authorities. Product classes falling into the latter category include medical advertisements (e.g. advertisements for clinical treatment, drugs, medical devices, and so forth), agricultural chemicals, veterinary drugs and health foods.

No hidden ads

Consistent with the Advertising Law and the increasing focus on data privacy by the Chinese government in recent years, the Tentative Measures prohibit the inclusion of advertisements (or hyperlinks to advertisements) in emails to users without their consent. The Tentative Measures remain silent on whether this requires the users' opt-in or opt-out type of consent.

The Tentative Measures also reiterate the principle under the Advertising Law that online advertisements must not interfere with people's normal usage of the Internet—hence the requirements that pop-up ads must be capable of being closed by one single “click” and that users must not be deceived into clicking on hidden advertisements.

Other prohibited acts

The Tentative Measures also prohibit certain activities relating to online advertising that may be seen as forms of unfair competition, such as:

• Providing or using applications, hardware, etc. to block, filter, skip over, tamper with, or cover up lawful advertisements provided by others;
• Using network access, network equipment and applications to disrupt the normal transmission of other lawful advertisements provided by others, or adding or uploading advertisements without permission;
• Harming the interests of others by using fake statistics or traffic data.

Role of ICPs

Internet content providers (ICPs) (basically website operators in the Chinese context) may wear multiple hats in the online advertising context.

On one hand, ICPs publishing their own advertisements or engaging in online advertising services will be subject to the legal requirements applicable to traditional advertisers and publishers of advertising.

On the other, under the Tentative Measures, even if they are only involved in providing Internet content services and do not provide advertising services, ICPs will be required to stop unlawful advertisements if they know or ought to know about the publication of unlawful advertisements through their website. This can be quite an onerous obligation.

Online business strategies

Companies need to review their advertising practices and online presence in China to ensure compliance with the Tentative Measures, the new Advertising Law and the range of new internet regulations, especially in light of the potential surge of regulatory enforcement and consumer complaints that are likely to follow in their wake.

It is, in particular, advisable to:

• Be alive to and prepared for increasing awareness and sensitivity among the Chinese public, leading to a rise in consumer (or competitor) complaints and regulatory enforcement on the back of this—even for minor or technical breaches.
• Implement a thorough internal policy review of online advertisement checks and reviews—especially for content that originates from outside China that may be culturally or politically sensitive, covering all existing marketing channels in China, e.g. mobile platforms, via SMS or email.
• Develop a China online advertising strategy taking into account the new Tentative Measures as well as the new and restrictive online publishing and domain name rules etc.
• As for ICPs that are not as heavily regulated in other markets—beware of the 'multiple hats approach' and the need to implement corresponding policies and changes to terms for clients placing advertising. Monitoring will need to be stepped up of all advertisers on an ongoing basis.

China has taken a long time to get there, but it is abundantly clear from the amendments to its Cybersecurity Law, Consumer Protection Law, Advertising Law and the promulgation of the Tentative Measures that it is getting serious about regulating this space.

Only time will tell how rigorously these rules will be enforced in practice, but businesses (whether on the client or advertiser side of the equation) need to take note and carry out a thorough review of all their processes and procedures to avoid getting caught up in complaints that may impact their businesses and give rise to regulatory issues going forward.

Eugene Low, Partner, Hong Kong, and
Stefaan Meuwissen, Professional Support Lawyer, Beijing,
Hogan Lovells