Background

Influencer marketing has grown rapidly in China, which is considered as no longer an option but a necessity for brands. Influencers, or key opinion leaders (“KOLs”), have become commonplace on e-commerce and social media platforms. Ruhnn Holding Limited (NASDAQ:RUHN, “Ruhnn”), which acts as an “influencer incubator” has been listed on the NASDAQ since this April, providing a sense of the size of the influencer industry in China. 

For advertisers, especially foreign brands who may yet fully appreciate the on the ground realities in the China market, it is important to note the increasing reliance on influencers. In this environment, it is important to be cautious of both contracting risks and specific legal requirements emerging to cover every aspect of influencer marketing and strengthen supervision and management by authorities.

Contracting Parties

The practices for engaging influencers remains greatly diverse in China. Therefore, it is important to understand the types of typical contracting entities in this respect:

• “Unions” managed by an individual manager. Some influencers, usually those early in their career or not famous, act individually or together as a "union” (公会) via WeChat groups organized by an individual manager. This form is not legally protected and we do not suggest cooperating with influencers under this structure since the costs of violating (by the KOL) an implied or informal contract is quite low.
• Agencies are often used by KOLs as professional agents often also serving as incubators. This has become a much more common model as of lately. Advertisers can enter into an agreement with the agencies directly. Many popular influencers are contracted out by her/his agency exclusively. Therefore, the brand/advertiser must reach the agency to negotiate the details of the cooperation of the relevant KOL. 

Key Terms 

While disputes may arise for a variety of reasons, below are some key points to be considered in negotiating promotional agreements with Influencers in China:

• Calculation and payment of promotion fees. The calculation of promotion fees differs by agency and KOL. Some are fixed as a package while others may be varied per sales effect or other parameters for which it is important to clearly specify determination of sales amounts and profits to be gained from the influencers’ promotion.
• Exclusivity.  KOLs may be under exclusive promotion agreements with specific brands or advertisers prohibiting them from promoting similar products, such as women’s clothes or accessories, for other competitive brands. this means a brand/advertise may be rejected by a famous influencer. Moreover, when such brand/advertiser contracting with an influencer or his/her agency, it may consider to require the exclusivity, where the scope of exclusivity should be clearly defined.
• Influencer Behavior. Although influencers are not celebrities, some of their followers do care about their behavior. Improper comments or negative behavior by the influencer, including their private posting on social media, may decrease the number of followers which greatly weakens their influence, or even violates the law and results in administrative punishments. Before hiring an influencer, a background research may be helpful and when entering into the agreement, provisions regarding keeping a positive image and forbidden behavior are necessary.
• Illegal Copying.  Enforcement of IP protections are quite weak in the e-commerce industry. As a result, for instance, the design of a dress that a famous influencer wears and sold on e-commerce platform could be easily copied by many other online shops and included with tags like “XX’s style” but at much lower prices, meaning that hiring an influencer to promote will not only boost the sales but also damages due to IP infringement as a consequence of the level of exposure. Thus, advertisers should learn to utilize the IP protection systems on platforms such as Ali IP Protection while also seeking legal relief including cease and desist letter, administrative complaints and even lawsuits to target infringers.

Legal Requirements

When it comes to promotional activities, brands/advertisers also need to understand PRC advertising law requirements. For instance, in China, many advertisers prefer to hire an influencer to share their products/services with their followers on Xiaohongshu (also known as RED is a social media and e-commerce platform), on which the influencers’ post used be presented as personal recommendation and therefore difficult for users to distinguish whether this is an advertisement or not. From legal compliance perspective, these posts shall be clearly marked with "advertisement" if they are published for commercial promotion.  Other important legal requirements in this respect include:

• Endorser Limitations. Amongst others, this includes the requirement that children under the age of 14 may not be used as advertisement endorsers. As a corollary, brand/advertisers should take necessary measures to ensure children influencers are excluded as candidates for product endorsers. However, general commercial activities such as modeling or acting in the advertisements are not prohibited.
• Content Limitations for Certain Products. Using cosmetics as an example, it is illegal to declare products registered or filed as cosmetics as “cosmeceuticals” or “medical skincare products”. In addition, any advertisement for medical treatment, pharmaceuticals or medical devices may not contain any assertion or guarantee of efficacy or safety, any statement on the rate of cure or other effectiveness, comparison with the efficacy or safety of other pharmaceuticals or medical devices or with other medical institutions, and advertisement endorsements or testimonials, etc. In 2017, a live-streaming platform and several female broadcasters (KOLs on the live-streaming platform) were investigated and punished by local health department due to their promotion for an androgyny hospital in their streaming show and fraudulently alleged themselves as physician assistants.

Hope the above is helpful for your influencers marketing in China.