What happened?

May 21 usually marks the start of Xiaoman (“little full”, referring to buds of grain), the 8th solar cycle in the traditional Chinese lunar calendar, often associated with new growth and the start of summer. Coinciding with this, on May 21, 2022, FAW-Volkswagen Audi, working with agency M&C Saatchi, released an ad featuring Chinese actor Andy Lau. In the ad, Lau movingly shared his thoughts on Xiaoman and what it meant to him. The ad was an immediate viral success, but just as quickly faced intense backlash as users noted that Lau’s script had been copied from a TikTok post by influencer “Beida Mange” in 2021.

Audi took the ad down the very next day and apologized, while also noting that the ad was produced by Saatchi. Saatchi also apologized. Then Andy Lau weighed in with his own message of regret and respect for the original work. Few days thereafter, Beida Mange publicly stated that he would give them permission to use his words, but the damage was already done. Audi did not re-post the ad and its reputation appears to have suffered among a key demographic of Chinese consumers.

What we learned from this?

At root, this is an issue of copyright. Brands often tie their marketing in China to traditional cultural elements, and this can be successful despite the many risks of getting it wrong (see: http://blog.galalaw.com/post/102frcj/marketing-in-china-culture-issues). But even more fundamental than the cultural reference is the basic right to use the material. In the Audi case, the Xiaoman concept is not and cannot be owned by anyone, but Beida Mange’s words from 2021 are owned, and there is both legal and reputation risk of infringing that ownership by copying his words into a commercial script.

What legal consequence might arise?

First, liabilities are driven by both advertising law and copyright law. Under article 63 of the advertising law, the advertiser, publishers, and ad agency bear civil responsibility according to applicable law, if the ad infringes legitimate civil rights and interests of other parties, which includes copyright. Under Copyright Law, civil liability for the infringing party (generally the advertiser) can include orders to cease the infringement, take remedial actions and/or issue an apology, and the payment of damages. Damages are calculated with reference to: (i) the actual losses suffered by the rights holder or the illegal proceeds obtained by the infringer; or (ii) the royalties payable for such rights, if it is difficult to calculate actual losses or illegal proceeds. If the above methods do not apply, then the court may award compensation ranging from RMB 500 to RMB 5,000,000 (USD 747,000).

In this case, as the copyright owner has concluded an agreement regarding the copyright authorization of his works for free, the copyright dispute shall be considered resolved. Otherwise, theoretically, the copyright owners can claim damages even after the ad was removed and there was a public apology by the infringing parties.

Who can be held liable?

 The brand

  • Under PRC Advertising Law, both the advertiser and ad agency bear civil responsibility under applicable laws if the ad infringes the legitimate civil rights and interests of other parties (Article 68), which would include copyright. That is to say, Audi as the advertiser is not exempted from liability even if it claims that Saatchi created the ad, not Audi. A brand could impose contractual indemnification obligations on its agency or any other supplier in respect of costs to the brand caused by the supplier’s actions (e.g., a breach of representation as to the legality of any product/service provided), but the brand would still have to face any liabilities directly before being made whole by the supplier.
  • For copyright infringement, as the advertiser is generally considered the owner of the copyright of the ads, the advertiser bears the directly legal responsibilities for copyright infringement by the advertisement.

The agency

  • The agency is jointly liable with the brand under PRC Advertising Law. In practice, agencies are not sued nearly as often as brands, but as mentioned above the brand may have grounds to seek indemnification from the agency based on contract.
  • Another consideration under Copyright Law is that who owns the copyright to the advertisement. As we mentioned above, normally the brand (i.e., the advertiser) will hold all IP in the work products. But if the agency retains ownership of any infringing IP, then its liability may increase. Further, if the agency engages in any activities such as distribution, copying or communicating the material to the public via information networks, then more claims against the agency will be possible.

The endorser

  • Under PRC Advertising Law, endorsers have a number of obligations. For example, endorsements by celebrities must reflect the celebrity's honest experience or opinion; and if the endorsement represents that the celebrity uses the product, that celebrity actually must use the product. Critically, endorsers can be held jointly liable with the brand if they breach their obligations as endorsers. However, the endorser is generally not be liable for copyright infringement by the ads. Article 63 of the advertising law only lists “the advertiser, publishers, and ad agency” as responsible parties, which does not include endorsers. Under PRC Copyright law, it is the performance organizer (i.e., typically the producer) who has the obligation to obtain permission from a work's copyright owner (Article 38), which means that the performer does not have a legal obligation to obtain license from the copyright owner and then is usually not liable for infringements. Unless the endorser acts multiple roles, e.g., publisher or producer of the ads, he/she would not be responsible for copyright infringement for the advertisement. Given that malicious intent is a key trigger for compensation under PRC Copyright Law, then assuming that Andy Lau was not even aware of the origins of the work, liability for him is unlikely in this case.

The platform

  • For the platform where the ad is released, if the platform acts as publisher of ads, then it has responsibility of the advertising law (Article 63); if it solely acts as a social media platform where advertisers post ads to their official account, then it would not have responsibility under Copyright Law/ Regulations on Protection of the Right of Communication through Information Network, unless it knew or had reasonable grounds to know that the subject ad infringed the copyright of a third party. In a prominent case like the Audi case, as there was a lot of attention to the case, it’s likely that the relevant platforms would remove the ads or request the advertiser to provide supporting documents for copyright.

Avoiding copyright infringement

Brands and agencies have many priorities to juggle when developing ads, but careful content clearance should never take a back seat. A few basic steps can minimize legal risks:

  • Due diligence: This can be done in-house or by service providers, and typically involves both automated and human review of the material to find infringements. Deeper diligence can involve interviewing creators and producers of each element of the work to identify its origins and sources, and the review of draft materials to validate that all works were self-developed or properly sourced.
  • Contracting: Any service providers, including the agency, should provide comprehensive representations, warranties, and indemnities relating to their core obligations, including the authenticity and legality of any work product.
  • Training: The brand ultimately bears the risk of copyright infringement, but it relies on its employees, contractors and suppliers to produce the work. They must understand the basic legal landscape and their fundamental obligations. Brands can provide appropriately targeted training to employees and contractors, and can require that their service providers provide trainings to their own employees. Brands can also offer or require trainings directly to service providers, in order to educate service providers on the brand’s standards and key IP protection procedures.

For endorsers, they must also be sure that their contracts impose strong obligations on the other parties, i.e., that the endorsement contract signed with the advertiser clearly stipulate the advertiser's guarantee of non-infringing content, including liability for breach. Such liabilities should include broad possible damages, given the risk to the endorser’s reputation and resulting loss of income that could result from a case like this.