Advertising serves as an effective instrument for increasing the sales of goods and services. Accordingly, manufacturers and/or sellers make active use of a variety of advertising tools, including by retaining organizations that specialize in advertising. Put differently, a person may advertise either on its own or through third parties engaged for that purpose.
This article distinguishes between two categories of advertising placement:
- authorized placement of advertising; AND
- unauthorized placement of advertising.
For the purposes of this article, it should be emphasized that advertising frequently incorporates the means of individualization of a legal entity, such as its trademark and trade name (the “Means of Individualization”). As a result, placing advertising often entails using Means of Individualization in printed, electronic and other materials available to an indefinite number of persons.
It is noteworthy that, although unauthorized placement of advertising may well occur, advertising legislation contains no provisions that directly govern such placement or impose liability for it. In this regard, it is useful to recall that advertising legislation recognizes three participants in advertising activities: (1) the advertiser, (2) the advertising producer, and (3) the advertising distributor.
The Law of the Republic of Kazakhstan “On Advertising” (the “Law”) assigns to each of them its own competence and scope of liability. This allows the risks associated with advertising placement and the use of Means of Individualization to be identified and addressed. These risks must be taken into account regardless of whether the three roles are performed by one person or by different persons.
On this basis, authorized placement of advertising is, in our view, characterized by:
- the advertiser’s intention to create (produce) and place advertising; OR
- an instruction given to a third party to produce or place advertising; AND, AS A RESULT,
- the conclusion of an appropriate agreement for the placement of advertising; AND ALSO
- the advertiser’s obligation (and practical ability) to ensure that the advertising meets legal requirements.
It follows that unauthorized placement of advertising occurs only where all of the above elements are absent simultaneously. Notably, administrative liability for such placement may be imposed not on the person who actually placed the advertising, but on the person whose Means of Individualization appear or are used in advertising that it never authorized.
These risks stem from the fact that the Law, the Code of the Republic of Kazakhstan “On Public Health and the Healthcare System” and a number of secondary legislative acts establish mandatory requirements for the advertising of particular goods and services. In particular, the Law sets out the concept of improper advertising, which the legislation treats as unfair competition — a practice that is prohibited and punishable by substantial fines.
Furthermore, outdoor advertising, by way of example, is subject to fees payable under the Tax Code of the Republic of Kazakhstan (the “Tax Code”). Non-payment of these fees likewise gives rise to administrative liability.
While the law does provide grounds for exempting a bona fide business entity from liability for the unauthorized placement of improper advertising, in practice any such exemption is inevitably preceded by the commencement of administrative offense proceedings, with all the attendant consequences. For this reason, the owner of a Means of Individualization (the “Owner”) bears a de facto, unwritten duty to monitor whether its Means of Individualization are used in advertising with its authorization and in a proper manner.
From a formal legal standpoint, this duty may be discharged, among other things, by concluding agreements such as:
- an agreement for the production and/or distribution of advertising; AND/OR
- a license agreement.
Each of these agreements is significant both for advertising purposes and for managing the associated risks.
A license agreement, for instance, is advisable where a Means of Individualization is used in the interests not only of the Owner but also of third parties. It should be clarified that the right to a Means of Individualization is a right in rem — specifically, a right of ownership. Consequently, an Owner that uses its own Means of Individualization in its own interest does not conclude any agreements. In particular:
• with respect to a trademark, the Owner is entitled to register it, whereupon the trademark will enjoy protection either internationally or domestically, depending on the registration route selected;
• with respect to a trade name, under paragraph 2 of Article 38 of the Civil Code of the Republic of Kazakhstan, a legal entity holds the exclusive right to use its trade name as of the date of its own state registration.
Turning back to the license agreement, its subject matter consists in the Owner granting a third party the right to use a Means of Individualization on specified terms. Such an agreement must be concluded in writing, must include the mandatory terms prescribed by law, and is subject to state registration. Any use of a Means of Individualization by third parties without a license agreement with the Owner is unlawful.
Accordingly, nothing restricts the Owner from controlling the authorized and lawful use of its Means of Individualization. Specifically, the law:
- does not prohibit the Owner from monitoring how third parties use its Means of Individualization;
- entitles the Owner to require that such use be discontinued where no license agreement is in place.
Practice shows, however, that third parties often make widespread use of Means of Individualization without the Owner’s knowledge or consent and, moreover, in violation of the Law’s requirements as to the content, procedure and conditions of advertising placement. It is precisely this situation that exposes Owners to risk where advertising is placed without their authorization. As mentioned above, such risks include potential tax exposure as well as exposure under competition law.
Given the foregoing, we underline how important it is for Owners to monitor and control the dissemination and use of their Means of Individualization, including by preventing their unlawful use by third parties. The legislation establishes a procedure for asserting such claims and stipulates the consequences of failing to comply with them.
Consequently, where business or other relations between Owners and third parties involve the use of Means of Individualization, such use must in all cases comply with the law and take into account the particular conditions and specifics addressed in this article. To this end, it is recommended that license agreements and other advertising-related agreements:
- accurately and correctly set out the statutory competence and liability of the advertiser, the advertising producer and the advertising distributor, with due regard to the requirements of the Tax Code;
- be drafted with proper care and forethought, since agreements frequently play a significant role in managing the risks associated with the use of Means of Individualization, including in advertising.