How to advertise legally?

3 factors to consider to ensure your advertising is deemed proper  in a legal point of view

One of the most useful tools for starting and running a business is marketing, which can help a company’s product or service reach the masses and raise awareness of its brand in line with market needs. There is a wide range of marketing tools available in different sectors, but in order to ensure that the values that the company wishes to convey and the ethos that its managers represent are conveyed in advertising, it is necessary to respect the legal, ethical and tasteful boundaries through which the marketing tool can achieve the best possible impact. 

 

It can be said that in today’s world, the primary platform through which a large percentage of consumers come into contact with specific products and services is the internet and various social networking sites. In order for businesses to compete and deliver value to consumers in the fastest possible way, it is essential to use these platforms, but behind this lies a whole body of legislation that must be complied with to ensure smooth operation. 

 

In this article, we outline 3 aspects that will help you to get the advertising law right.

 

1) Correct regulation of the contract, including advertising law

2) Proper definition of roles in advertising law 

3) Other necessary additions to advertising regulations

 

Based on the details of the 3-Point Test Guide, the following will clearly set out the cornerstones that are essential for the proper regulation of the legal relationship behind an advertisement.

Adequate regulation of the contract also in the field of advertising law

 

Recently, our firm assisted a company that had a clear vision for advertising and marketing its products and services, but needed to regulate the legal framework for doing so. In the course of the consultation, we carried out a comprehensive assessment of the client’s intentions and plans with regard to the service in question, which showed that, in addition to the general civil law contractual provisions, it was essential to include in the contract rules and provisions in line with the provisions of the Advertising Act in order to clarify the legal relationship and roles. 

 

The most important provisions in the case of advertising law contracts are the precise definition of liability and the obligation to comply with the mandatory advertising law rules recommended for such transactions. It is also an essential clause that, when advertising another company’s product, the company that produces the product must guarantee the quality control and conformity certification of that product.

 

2.) Proper definition of roles in advertising law

 

It is important to emphasise that in contracts where advertising is included in the service, or where the service itself is intended to promote another company’s product, it is essential to define the roles, as imprecise definitions can have not only legal but also tax implications.

 

The figure above illustrates the chain of interlocking roles in advertising law. In defining all these roles, it is important to note that at each step there is not only a division of responsibilities but also a division of obligations between the actors. 

 

A simple example to understand the advertising intermediary is that of a website operator who provides a website to another company to promote its product, and the company that operates its own website is therefore the advertising intermediary.  

 

A media platform advertiser is any platform that displays different ads from different companies. In such cases, we usually recommend the conclusion of a type of contract for the sale or purchase of advertising space, whereby media space owners can enter into an agreement with an advertiser or agency for the publication of advertising. 

 

An advertising intermediary is a company that engages another company to buy impressions for that company, i.e. it brokers the content, products or services of the engaging company to another site. It is important to note that the advertising intermediary is entitled to a 15% fee from the advertiser, based on the publication fee for the advertisement, and cannot accept any other free payment from the advertiser. A fundamentally different contract must be drawn up in the case of advertising mediation. 

 

If the service provider is acting as an agency and it is an advertising intermediary, the following is a brief outline of what you need to know:

 

According to the provisions of the Advertising Act, advertising intermediation means the activity of facilitating the conclusion of a contract for the publication of an advertisement on the basis of an intermediation contract with an advertiser, excluding the activity of providing advertising services.

 

Pursuant to the Advertising Act, an advertising intermediary may not, in the course of or in connection with its advertising intermediation activities, directly or indirectly, accept from the advertiser or from a media advertising space sales agent acting on behalf of the advertiser, any gift, other than a discount, or any other benefit, other than a pecuniary or other advantage, from the advertiser or from any other person, in addition to the fee for its advertising intermediation activities. The advertiser or the media advertising space sales agent acting on his behalf may not grant the advertising intermediary any material or other advantage other than a discount. In accordance with the Advertising Act, the advertising intermediary shall fully enforce any discount received on behalf of the advertiser.

 

Essentially, there are two types of advertising mediation:

 

AGENCY TYPE

MEDIATOR TYPE

In the case of agency-type advertising intermediation, the advertising intermediary acts as an agent on behalf of and for the benefit of the advertiser. The provider of the advertising-publication service, the advertiser, provides the service directly to the advertiser in whose name and on whose behalf the advertising intermediary agent acts.  The advertising intermediary also provides a so-called „agency” service for the advertiser.  The contract for advertising communication is therefore concluded between the advertising intermediary and the advertiser, with the advertising intermediary acting on behalf of the advertiser.  In such a case, the advertising intermediary invoices the advertiser (as the „contracting party”) directly by reducing the (basic) advertising fee(s) by the discounts applicable to the transaction.  Separately, the intermediary issues an invoice to the advertiser for the intermediation fee due.  Under this arrangement, the advertiser is considered to be the customer for advertising tax purposes.

In the case of Mediator type of advertising, the advertising intermediary acts in his own name but for the benefit of another.  The Mediator is both the recipient and the supplier of the intermediated service, so that a service is provided between the intermediary and the advertiser and between the intermediary and the advertiser’s intermediary, the intermediated advertising service.  From the advertiser’s point of view, the Mediator is the customer who, in his own name, concludes a contract to order the publication of the advertisement. It is not necessary for the Mediator to invoice the advertiser for the advertising fee less all discounts (the invoice received and issued by the advertising intermediary should be the same amount) and to issue a separate invoice for the fee to the advertiser.  The Mediator’s fee may be deducted from the value of the invoice it receives from the advertiser, i.e. it may be invoiced on a net basis. In order to ensure full compliance with the provisions on the full passing on of discounts received by the advertising intermediary, the invoice issued by the advertising intermediary to the advertiser should be itemised to show which discounts applied have reduced and by how much the advertising intermediary’s fee has increased the amount invoiced for the publication of the advertisement. In addition to the mandatory information, the taxable person may include other information on the invoice he issues, but the issuer of the invoice may also choose to itemise the fee(s) and discounts charged in an inseparable annex to the invoice.

 

3.) Further necessary additions due to advertising regulations

 

In the context of advertising law, a number of important provisions need to be laid down in a contract, which are very different from what is already customary in a more typical transaction. If the advertisement is accompanied by a video, a separate contract should be concluded with the actors or the video producer. As an annex to the original advertising contract, it is recommended to include the Hungarian Competition Authority’s information on content production in the case of influencer cooperation, as well as the Hungarian Code of Advertising Ethics and the Self-Regulatory Advertising Council’s recommendation on the minimum rules for the inclusion of children in advertising and influencer cooperation. In addition, if other persons are involved, it is recommended that, in addition to the separate contract, a data processing information and consent form be drawn up for them, stating for what purpose, for how long, on what legal basis and for what activity the personal data, image or name will be processed. 

 

To sum up, if we were to describe the legal relationships in relation to advertising in a single term, it would certainly be a complex and intricate set of relationships, which shows that there are many factors and concepts to be aware of and take into account when drawing up a business plan, and that it is therefore necessary to consult a legal expert in order to obtain a clearer picture. 

 

If you feel that you need to draft your advertising contracts in accordance with advertising law and require legal advice on this subject, please contact our office.

 

Authors. dr. Márta Szoboszlai, dr. Gergely Bajcsay

 

Please note that the general information provided in this article is for informational purposes only and does not constitute legal advice. We accept no liability for any misinterpretation of the above information or for any changes in the law which may have occurred in the meantime. If you have a specific question or legal problem, we are able to provide individual advice after consultation with our office and after a full investigation of the case.