Advertising with Baidu: A Contract Analysis

We recently analyzed what we understand to be Baidu’s standard documents for those who wish to market their products or services on Baidu. Because so many foreign companies are marketing on Baidu, we thought the following report might prove helpful.

Baidu’s advertising contract is composed of the following three basic documents:

1. The Chinese/English Order (“Order”) Baidu provides to its potential customers.

2. Baidu’s Marketing Contract (“Contract”) in the Chinese language.

3. Baidu’s marketing services Purchase Order.  We have not seen a copy of this document and we were not able to locate a copy of it on Baidu’s website or elsewhere on the Internet.

The key document is the online Chinese language Contract. The only provision unique to the Order is the provision related to payment in foreign currency. This provides that foreign currency will be converted into Chinese RMB at the exchange rate in effect at the receiving bank.

If after exchange there is a shortfall in the required payment amount, the customer is required to make an additional payment to cover the full amount. If the exchange results in an excess payment, the excess is credited to the account. No refund is made to the customer. This is all pretty standard for foreign currency transactions in China.

Our remaining comments will concern the Contract.

In general, the Contract is an even-handed and fair document. The provisions are actually far less commercially oppressive than the typical U.S. Internet marketing contract, which are usually far more one-sided and oppressive to the customer than the Baidu contract.

However, it is also true that Baidu’s approach is not international. They do not translate their key contracts and they expect their foreign customers will be contained within an entirely Chinese system. Since Baidu is almost entirely a Chinese focused website, this attitude is understandable.

Our specific comments are as follows.

1. The Contract clearly states that the governing law is the law of China. All disputes must be decided in the Chinese courts located in Haidian in Beijing. Haidian is one of the most sophisticated courts in China, so this jurisdiction is not unfavorable to the foreign customer.

As a result, foreign customers will have a remedy against Baidu in China. On the other hand, Baidu must also bring an action against foreign customers in Beijing. This means Baidu does not have an effective way to bring an action against a United States company with all of its assets in the United States because Chinese court judgments are generally not enforceable in the United States. So even if Baidu were to sue an American customer and win in China, the judgment may not be enforceable against that American company’s assets.

2. As the Order makes clear, the general structure of payments is that the customer make an annual management fee payment and then make prepayments for advertising fees. In the case where the prepayment is not sufficient to cover fees, Baidu will provide notice and the customer must promptly pay the excess. Failure to pay is a breach resulting in termination of services.

The agreement provides for many cases where the parties may terminate the agreement. The basic approach is as follows:

  • When termination is not for a breach, then Baidu will refund any remaining amounts in the prepayment account. The annual management fee will not be refunded.
  • When termination is due to the breach of the customer, then services terminate and no refund is provided.

This is a crude approach, but typical in the industry.

  • As you would expect, Baidu reserves the right to screen content. In addition to the normal screening for illegal content, Baidu also screens to ensure that their is no content that violates Chinese law or policy on political content. Baidu will provide notice of any screened content. If the parties cannot agree on alternative content, then the customer has the right to terminate. This is not treated as a termination for breach.
  • If the customer wishes to question Baidu’s advertising statistics, the customer is to provide written notice to Baidu. If Baidu is not able to satisfy the customer, the customer has the right to terminate. This is not treated as termination for breach.
  • If a third party makes any claim about the content of any material posted by a customer, Baidu will immediately remove the content. Baidu will notify the customer of the claim and the customer will deal directly with the claiming party. Content will not be restored until after the dispute is resolved directly between the disputing parties. If no resolution is possible, the customer has the right to terminate the agreement. This is not treated as a termination for breach. Though this procedure no doubt seems unusual, it is pretty much required by Chinese law, since Baidu is directly responsible for infringing content if it does not immediately remove content once notice is received from the aggrieved party. Note also that Baidu provides that the customer is liable for all Baidu costs in dealing with such claims, even if the claims prove to be frivolous.
  • Baidu accepts liability for losses resulting from its intentional acts or negligence. Baidu does not attempt to severely limit its liability in the way that is typical for U.S. Internet companies. A partial reason for this, however, is that Chinese courts do not typically award consequential or punitive damages, so the need for such a disclaimer of liability is not great.

The above are the main issues relating to the Baidu agreement.

Anyone else?

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