Risks of live-streaming sales contracts

The popularity of live-streaming sales under covid-19 is clear. As the most popular way of marketing, the value of the live-streaming sales industry reached RMB433.8 billion (US$67.1 billion) in 2019, according to iiMedia Research. Live-streaming sales diversifies the shopping experience, but also exposes a lot of problems. Considering from the commodity operators’ perspective, and based on the experience of solving problems arising from the live-streaming sales contracts, this article introduces the risks of live-streaming sales contracts.

Personal services of streamers

Live-streaming usually starts with the commodity operator signing a contract with a multi-channel network (MCN) company (an agent company that intermediates between live platforms and the streamers). The MCN company will pick the live platform, and the streamers from the MCN company will provide live-streaming to the platform audience.

Unauthorised replacement of streamers has become the most typical issue in contract disputes between MCN companies and commodity operators. In a service contract dispute case ruled by Shanghai Hong Kou People’s Court, regarding the MCN company’s unauthorised replacement of the streamer, the court held that a live-streaming sale is used to provide publicity and promotion for the commodity, and in this respect the number of followers of a streamer obviously correlates to the publicity.

In this case, the original five streamers had many more followers than the ones the MCN company appointed for the subsequent live-streaming, which must have caused a sharp drop in the expected audience number, failing to gain the promotion effect expected in the contract. Therefore, the MCN company shall bear the liabilities for breach of contract.

The significance of a streamer is self-evident, especially the “influencer streamer”, who brings large traffic and followers, who can empower and promote the commodity, and bring in substantial income. This is also the most important element in deciding the price of a contract. Therefore, it is important to decide on alternative selections of streamers, and clarify the consequences of breach of contract, during the negotiation period.

Promotional language

The wording that the streamer uses to promote usually may not be expressly specified in the contract, nor be confirmed before the streaming. The streamer might “improvise” with the keywords of the products, which may cause a risk of false advertising.

From the perspective of legal regulation, the subjects of responsibility for false advertising under the Anti-Unfair Competition Law shall be the operators who conduct or help with the unfair competition. In this sense, the commodity operator, the live-streaming platform and the streamer will probably face administrative penalties from false advertising, set out in article 20 of the law.

The Guidance on Strengthening the Regulation of Live-Streaming Marketing Activities stipulates the legal responsibilities of live-streaming platforms, commodity operators and streamers, respectively. If the streamer recommends and certifies products and services in their own name or image during live-streaming, and the live-streaming content constitutes a commercial advertisement, it should be regarded as an endorsement, which should be directly governed by the provisions of the Advertising Law.

The Advertisement Law provides that the subjects of responsibility are advertisers, advertisement operators, advertisement posters and advertisement endorsers. In this sense, commodity operators, live-streaming platforms and streamers face different administrative or civil legal penalties, according to their respective roles. In addition, if the false advertising commits a crime, the corresponding responsible subject will bear criminal legal liability.

Risk of price commitment

Live-streaming sales contracts also stipulate commitments of minimum price for a certain period of time, and streamers’ promotional wording, like “the lowest price on the Internet” and “firesale price”, to obtain and sustain the follower and traffic. Such price commitment usually accompanies a high number of liquidated damages and refund fees, which are many times the retail price. If the price offered during the live-streaming is different from the price offered in other places, it may cause breach of contract, return of goods, price fraud and other issues.

In addition to the cost for returning the goods, if price faking is involved it may constitute the price fraud stipulated in article 14 of the Price Law and article 7 of the Regulations on Prohibition of Price Fraud, which includes but is not limited to:

(1) making up the original price, making up the reason for lowering the price, increasing the price and then offering a discount, and falsely claiming price reductions or upcoming price increases to entice others to purchase;

(2) failing to perform, wholly or partly, any price commitment;

(3) falsely claiming that the sales price is higher or lower than the sales price of other operators to entice consumers or operators to make a deal.

Commodity operators who commit price fraud may face administrative penalties listed in article 7 of the Regulations on Administrative Penalties for Price Violations, be liable for civil damages under the Law on the Protection of Rights and Interests of Consumers, and, if committing a crime, be subject to corresponding criminal liability.

Some suggestions

The risks related to live-streaming contracts and relevant commercial activities are far more than those mentioned above. Internet technology and communication technology innovate continually, which increases the difficulties of deposition, evidence collection, proof and authentication of contract performance. Due to the complexity of the live-streaming forms, and the diversity of the roles played by the parties involved in different modes, the legal characterisation of specific acts and the implementation of the corresponding legal responsibilities still need to be analysed in judicial practice, under the specific circumstances of each case.

Commodity operators, live-streaming platforms, MCN companies and streamers should all clearly realise their roles and responsibilities in these matters, and face up to the issue of e-commerce compliance. When necessary, they should bring in professional legal counsel to clarify their responsibilities, and avoid possible risks.

Zhang Yubo and Wang Yidan are associates at Tiantai Law Firm