Endorsements and testimonials in advertising in the perspective of competition law.

Author:Liou, Hwa Meei
Position::Report
 
FREE EXCERPT

INTRODUCTION

Advertising is a common enterprise marketing strategy, and the personal experiences of celebrities, experts, professional organizations, and general consumers are common promotional approaches used by enterprises. In the internet era, all kinds of word-of-mouth marketing, articles posted on social websites (e.g. Facebook and Twitter), and blog writers have particularly become the best advertising media and have affected the life of all the people. This type of advertisement is generally called endorsement and testimonial advertising. Because this form of advertisement is made through the opinion expression and recommendation of a third party, it is different from the advertising marketing approach of traditional advertisers. In terms of the influence on consumers, endorsement and testimonial advertising can more easily gain the trust of consumers than traditional advertising, and can further facilitate consumers' decision on purchasing products and services. Therefore, the legal systems of various countries around the world usually impose restrictions on this type of advertisement.

As endorsement and testimonial advertising is still advertising in nature, various countries have formulated applicable advertising laws and regulations to impose restrictions. Due to the restrictions on False or Misleading Advertising in Competition Law, to date, many countries around the world have developed well-designed Competition Law systems, competent competition authorities, or Competition Law courts, and have accumulated abundant experiences in handling common unfair competition approaches and false or misleading advertising used by enterprises. Legal endorsement and testimonial advertising regarding products or services is a channel that increases positive information sources to consumers, and is beneficial to improving enterprises' profits and turnover. However, if the content of endorsement and testimonial advertising is false, or fails to display information independently or objectively, enterprises may violate Competition Law by using false or misleading advertising.

The following sections of this study investigated how the legal system of Taiwan, the U.S., Canada, Mainland China, and Germany stipulate endorsement and testimonial advertising. The main issues are, as follows: (1) principle of disclosure of material connection--if a certain material connection exists between people engaging in endorsement and testimonial advertising and advertisers, the independence and reliability of endorsement and testimonial advertising will be affected, and such a material connection should be disclosed; (2) whether the material connection of endorsement and testimonial advertising is reasonably expected by general consumers should be disclosed in advertisement; (3) disclosure methods--material connections are legally required to be disclosed, what are the specific disclosure methods, what are the requirements, and how to disclose a relationship for consumers to recognize? (4) definitions and identifiability of endorsement and testimonial advertising--what kind of the opinion expression of third parties online are pure information provision and feedback sharing, or whether they are substantial advertisement and should be stipulated by law; (5) regulations of online endorsement and testimonial advertising--the spreading speed and dimensions of endorsement and testimonial advertising of all kinds of online word-of-mouth marketing, articles posted on social websites, blogs, internet forums, BBS, etc. are different from those of traditional media, such as TV, broadcasting, newspapers. How to regulate it is a common question?

In the last section, this study takes a specific case in Taiwan as the example to explain how the competent competition authority--the Fair Trade Commission, imposes punishments on a foreign company engaging in online endorsement and testimonial advertising in compliance with the Fair Trade Act in Taiwan.

PRACTICES IN TAIWAN

Fair Trade Act

The main laws governing enterprises engaging in advertising marketing activities include the generally applicable Fair Trade Act and Consumer Protection Law, as well as individualized regulations on advertising for specific products, media, and industries, such as food advertisements, drug advertisements, farm produce advertisements, cosmetics advertisements, and TV advertisements. The Fair Trade Act mainly stipulates the legitimacy of use of an advertising engaging in competitive behaviors, while Consumer Protection Law focuses on enterprises' advertising authenticity obligation to consumers. The Fair Trade Act in Taiwan has been enforced for more than 20 years, since 1992, and the latest amendment was made in June 2015. In terms of endorsement and testimonial advertising, no amendment was made.

The regulations governing endorsement and testimonial advertising in Taiwan are stipulated in the Fair Trade Act. This Act includes restraint of competition, monopoly, merger, cartel, advertising, and gifts and prizes belonging to unfair competition. Endorsement and testimonial advertising is one of the forms belonging to "unfair competition." In 2010, the provisions of the second half of Subparagraph 5 and Subparagraph 6, Article 21 were added in the Amendment to Fair Trade Act in 2010. The provisions of proviso of the second half of Subparagraph 5, Article 21 were added to the Amendment in 2011--Where any endorser provides any testimonials that he knows or should have known would be likely to mislead the public, he shall be jointly and severally liable with the principal of such advertisement for damages arising there from, which belongs to civil responsibility. In terms of administrative responsibility, because those that provide endorsements and testimonials usually do not have the identity of "business", as stipulated in the Fair Trade Act; therefore, the Fair Trade Act itself does not stipulate the administrative responsibility of fines imposed on those who provide endorsements and testimonials. Instead, another act--the Administrative Penalty Act, where Article 14 stipulates that, if those who provide endorsements and testimonials, and advertisers intentionally violate the provisions of Fair Trade Act, they shall be imposed with the same administrative penalty as the advertisers. Moreover, the Fair Trade Act does not stipulate that criminal liability shall be assumed when endorsement and testimonial advertising violates the law.

As those who provide endorsements and testimonials may be famous public figures, professionals, organizations, and general consumers (Paragraph 2, Article 2 of Disposal Directions on Use of Endorsements and Testimonials in Advertising), it is unfair for those providing endorsements and testimonials with different identities to assume the same civil liability for compensation. Therefore, during the Amendment to the Fair Trade Act in 2011, the liability assumed by those who are general consumers providing endorsements and testimonials was narrowed. However, endorsers who are not celebrities, specialists, or organizations shall be held jointly and severally liable with the advertiser for only up to 10 times the reward they have received from the advertiser.

Disposal Directions

In order to respond to the increasingly diversified marketing approaches of endorsement and testimonial advertising, as well as various new types of online word-of-mouth marketing, the competent authority--the Fair Trade Commission not only enforces the Fair Trade Act, but also formulated explanatory Administrative Rules in 2005--Disposal Directions on Use of Endorsements and Testimonials in Advertising, which has been amended several times. The most important amendment was made in late 2013. In order to include the pattern of endorsement and testimonial advertising of articles posted on social websites into the scope of the Fair Trade Act, the amendments made under legal systems of different countries, such as the U.S. and Germany, were considered. The focuses of the amendment included: revising the definition of endorsement and testimonial advertising to include the advertising behavior of articles posted on social websites, adding the provision of required disclosure of material connections between those providing endorsements and testimonials and advertisers that is not reasonably expected by the general public, and adding the provision of required disclosure of material connections between those providing endorsements and testimonials in the manner of articles posted on social websites and advertisers that is not reasonably expected by the general public. In addition, those who fail to fully disclose such information in advertising that may affect trade order are involved in breaching Article 25 of the Fair Trade Act. The articles posted on social websites mentioned herein include articles posted by internet bloggers and articles posted in forums.

For example, a certain online message board specifically provides MP3 players for users to discuss new techniques for downloading music. Users of this online message board exchange information on new products, new applications, and new functions of the player. If an employee working for a supplier that plays the leading role in the industry of players, and whose identity is not known to the social website of message board, posts information to promote the products manufactured by the supplier, once it is known that the person posting the information is hired by the supplier, the credibility of his endorsement and testimonial content may be affected. Therefore, the person posting such information should clearly disclose their relationship with the supplier to board members and readers, and the supplier should remind the person posting such information to disclose such a relationship (cited from Disposal Directions on Use of Endorsements and Testimonials in Advertising, 6, Example). Another example is: a certain famous movie star...

To continue reading

FREE SIGN UP