China: FAW Audi Ad Blunter: Intellectual Property Infringement in Advertising

published on 14 July 2022 | reading time approx. 4 minutes

by Christina Gigler

The FAW Audi Ad plagiarism scandal provoked huge controversy on all kinds of Chinese social media and attracted public attention to originality. IPR plagiarism seams an unavoidable risk when it comes to creation and innovation. What can companies and advertisers do to protect their own interest and good reputation in the outsourcing ad production?

Liability of advertiser in such cases »
exclusion of liability »
prevention is better than cure »

The 21 May is the "Grain Buds", the second solar term of summer according to the Chinese lunar calendar. On this day, the Audi joint venture between China’s FAW Group and Germany’ s Volkswagen (“FAW Audi”) released a short promotional video entitled "Grain Buds of Life", which was led by and produced by M&C Saatchi, a London-based marketing agency. This ad with its unique creativity and beautiful script, which is full of traditional Chinese culture, has attracted a lot of attention on social media and garnered five million likes within one day. However, just a couple of hours later, a blogger posted a video accusing Audi of word-for-word plagiarism of his original video made a year ago. In the following days, FAW Audi withdrew the video from all online channels and apologized to the blogger. According to the blogger, he accepted the apologies and agrees to license the original work to Audi for free. “I hope this incident will raise more awareness for originality”, so said the blogger, putting an end to this blunder.

The furor is far from over nevertheless. The dramatic reversal, along with the popularity of FAW Audi and advertising agency M&C Saatchi in the industry, provoked public controversy. FAW Audi, as the advertiser, instead of promoting its products, was accused of plagiarism and lack of respect for originality, and harvests from the "Grain Buds" indeed a huge loss of trust. Thus, how can an advertiser prevent itself from or at least protect its rights in the event of Intellectual Property Infringement of a third party?

Liability of advertiser in such cases

First of all, in such incidents, it is certain that FAW Audi is responsible for the infringement. According to Art. 68 of Advertising Law of PRC, advertisers, advertising agencies and advertising publishers who infringe upon the legitimate civil rights and interests of others shall bear civil liability pursuant to the law. In addition, pursuant to Art. 19 of Copyright Law of PRC, attribution of copyright of a commissioned work shall be agreed between the commissioning party and the commissioned party through contractual agreement. Where the contract does not specify an agreement or where there is no contract, the copyright shall belong to the commissioned party. Thus, FAW Audi as the commissioning party should have possessed the copyright from the beginning. As the advertiser and advertising publisher of this ad, FAW Audi is the party directly responsible for the possible copyright infringement on the original blogger's right of authorship, revision, information network transmission etc.

As to the question whether FAW Audi has the right to demand indemnification against M&C Saatchi after assuming its responsibility for the infringement, it depends on the advertising contract between these two parties. We believe there must be an intellectual property indemnification clause therein. However, this does not affect Audi's legal responsibility towards the person whose rights have been infringed.

Exclusion of liability?

Can the advertiser appy the "warranty for title defects" in the civil code?

Art. 612 of Civil Code provides that the seller is obliged to warrant that no third party shall have any right in respect of the delivered subject matter, unless otherwise provided for by law. Where the purchaser knows or ought to know, at the time of concluding the contract, that a third party has rights on the subject matter to be sold, the seller does not assume the obligation prescribed in the preceding article. This provision however is under the section of Sales Contracts, whereas the advertisements production is essentially considered to be a contract for work, so it is not fully applicable. Furthermore, the consequence of a breach of “warranty for title defects” lies in suspension of payment, not in buyer's exemption from liability.

Is the "Legitimate source" as the reason for liability exclusion applicable?

The answer is also negative. For copyright – as stipulated in Art. 59 of Copyright Law, the "legitimate source" applies only to the publisher, producer and distributor of replicas and lessor of replicas of audio-visual works, computer software or audio and video recordings which infringe the copyright, but not to other subjects and behaviors. So it does not apply to the advertisement production service in this case as well.

Thus, it seems essential for advertisers to take proactive steps to prevent loss in case of infringement.

Prevention is better than cure

There are two ways to protect your interests as advertisers - or in general, as principal in contract for work or contract for commission, namely contract design and duty of reasonable care.

Contract design

Common advertising contracts include advertising production contract, advertising publishing contract and advertising billboard rental contract. Among them, the advertising production contract is most likely involving intellectual property infringement.

In order to take risks into account as comprehensively as possible in the drafting of the contract, a corresponding indemnity clause for intellectual property rights should be included in the contract.

The following key elements should be included:

Non-infringement subject: Outsourcing is the common practice among ad agencies. Therefore, not only the contractor but also subcontractors shall be included under the indemnification clause.
Actions triggering the liabilities: Not only infringement to but also misappropriate usage of the copyright of a third party shall be included therein. This is because in many cases of (alleged) IPR infringement, the involved parties are inclined to solve the dispute by reaching a private agreement instead of bringing it to court, especially if a well-known brand is involved, as in this case. In the absence of a court decision or arbitration award it is difficult to assess whether an infringement has occurred. Thus, requirement of “in own sole and entire creation” can also be added, in order to simplify burden of proof by advertisers when it claims compensation.
Scope of indemnity: The scope of the indemnity should cover not only direct damages but also indirect damages such as loss of goodwill. In addition, the liquidated damages in the event of a breach of obligation by advertising agencies may be separately agreed, the amount thereof can be slightly higher than the amount of expected actual loss in order to avoid an adjustment of the amount of damages.
Further remedies: Beside compensation, the advertiser could have a right to deduct the amount of compensation from the amount payable or to require the advertising agencies to refund part or all of the service fee.
Handling of infringement disputes: If an infringement lawsuit arises, the advertising agency should take the initiative as the responding party to handle the lawsuit, but the decision to reach a settlement should be in the hands of the advertiser.
Survival: The IPR indemnification clause normally survives expiration or termination of the contract.

Duty of reasonable care

Since works are not subject to compulsory registration, with rapid development of all kinds of media creation in China, it is not possible to 100% ensure detection of such cross-media plagiarism, especially when it comes to content of audio or video podcast. There are unfortunately no advanced tools or technologies to detect cross-media plagiarism as those to detect copying in student essays. Even if FAW Audi had performed a plagiarism check in this case, it is dubious if it had prevented the issue.

Nevertheless, it is still advisable for companies and advertisers to conduct similarity searches on their own or by entrusting external third parties and have it recorded. According to Art. 20 of Interpretation of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Civil Cases Involving Copyright Disputes, where a publication infringes upon the copyright of another person, the publisher shall bear the liability to compensate for the loss according to its fault, the degree of infringement and the consequences of the damage, etc. Where a publisher fails to fulfill its duty of reasonable care, it shall bear the liability to compensate for the loss. A publisher shall bear the burden of proof that it has exercised reasonable care. By conducting due diligence, the advertiser may claim its lack of subjective malice/intention and serious misconduct, which may mitigate its liability in compensation payment.

In the guiding case No. 80 released by Supreme People's Court in 2017 regarding another copyright infringement, the defendant entrusted a design agency to design the packaging, advertising script and promotional materials of its products, which however constituted infringement to the copyright of the plaintiff in this case. The defendant claimed that all the related materials involved were designed by the external party, which shall bear all consequences of any infringement of the design content according to the contract between them. The court held that the defendant as the ordering party of the product packaging, was unable to prove that it had conducted reasonable care and as the ultimate user and actual beneficiary of the infringing work, shall bear civil liability to stop infringement, eliminate impact, apologize, compensate losses, etc. The legal relationship between the defendant and the design agency is another legal relationship, which does not fall within the scope of this case. The parties can claim for settlement separately.

Therefore, having the advertisement content duly checked and recording such due diligence process accordingly does protect the advertiser to a certain degree.

Although this incident was relatively minor for the advertiser, it is likely to have an impact on the Chinese advertising industry, which will now pay more attention to originality and intellectual property rights. Companies and advertisers should be aware of the possible risks and take action to protect their interests as much as possible through proper design of contracts and reasonable supervision.