Product placement in Ukrainian realities

On June 7, 2023, the adopted by the Verkhovna Rada (the Ukrainian Parliament) draft law No. 9206, which introduces changes to the Law of Ukraine "On Advertising" (hereinafter referred to as the new Law), was sent to the President of Ukraine's signature. The primary purpose of the new Law is to complete the process of implementing European legislation norms in the field of audiovisual advertising into the domestic regulatory framework, which was initiated with the adoption of the Law of Ukraine "On Media" on December 13, 2022, to fulfil Ukraine's international obligations.

It is expected that the incorporation of European standards into Ukrainian media and advertising legislation will create conditions for adequately protecting consumers' interests while safeguarding Ukraine's media space and advertising market from unethical advertising practices.

One of the significant innovations proposed in draft law No. 9206 is the introduction of legal regulation of product placement. Despite being a widely used advertising tool for promoting products, brands, services, etc., product placement had not been mentioned in the existing legislation in Ukraine and, de facto, remained outside the legal framework.

According to various estimates, approximately 60-80% of advertisers worldwide use product placement, as it is considered one of the most effective methods for brand promotion and attracting the audience's attention without the risk of causing immediate rejection among a wide range of consumers, as compared to intrusive direct advertising. Ukrainian advertisers are no exception and readily utilize product placement in their marketing strategies. For example, there have been successful cases of product placement in contemporary Ukrainian film premieres, leading to significant growth in sales and profits.

However, despite instances of product placement use even within the country's largest television groups, such actions could be interpreted as disseminating covert advertising, which is prohibited in Ukraine under the current legislation. To avoid violating the existing ban, advertisers seeking to employ this useful advertising method would enter sponsorship agreements, with one of the elements being the condition for placing the product in certain content. Associating product placement with sponsorship limited its full-fledged use and did not correspond to the actual market needs or the legislative definition of sponsorship.

The aforementioned draft law No. 9206, which introduces at least partial regulation of product placement, aims to address various shortcomings and violations associated with the practice of using this advertising tool.

According to the text of the Law, already signed by the Chairman of the Verkhovna Rada of Ukraine, one of the forms of audiovisual commercial communication is the placement of products (product placement), which represents a form of advertising distribution. It involves the direct inclusion of a product, service, trade mark, another object of intellectual property rights under which activities are carried out, or recommendations regarding them, into any content of an audiovisual media program, including films, or user-generated content, for monetary or other remuneration.

Therefore, the first important innovation is the inclusion of the term "product placement" in Ukrainian legislation, which is an expression of the legal legitimization of this phenomenon in the country.

2) лікарських засобів, реалізація (відпуск) яких здійснюється за рецептом лікаря та/або заборонених до рекламування, а також медичної техніки, методів профілактики, діагностики, лікування і реабілітації, застосування яких потребує спеціальних знань та підготовки;

According to the content of the provided definition, product placement is not a type of advertising but rather a form of its dissemination. The essence of commercial communication through product placement lies in the direct inclusion of the product, service, or intellectual property object that a business operates under into any audiovisual media program other than advertisements, including films or user-generated content. However, according to the legislative definition, such dissemination is paid, but the compensation does not necessarily have to be in monetary form.

The general analysis of the text of the new Law indicates that Ukrainian legislators define product placement as an indirect means of shaping and supporting consumer awareness of advertisements and their interest in a person, idea, and/or product.

The detailed procedure for placing products in audiovisual media and on video and information sharing platforms is provided in Article 5-2 of the new Law.

Regarding the dissemination of product placement, it is allowed in all audiovisual media programs and user-generated videos, except for news programs, current affairs programs, consumer protection programs, religious, and children's programs. Therefore, formats that are focused on specific themes and/or intended for a particular target audience, which might be particularly sensitive to advertising, including hidden advertising, should not contain product placement.

It should be noted that the specificity of product placement lies in the fact that the advertised object is visualized or verbally described in audiovisual media for a certain period without any instructions or warnings regarding the advertised product and its usage or consequences. Thus, there is a particular risk associated with using such a form of advertising for certain products that may be harmful, dangerous, or require special conditions for use.

The above-mentioned concerns are the basis for the prohibition of product placement for certain goods established by the legislator in the text of the new Law:

1. tobacco products, tobacco consumption devices without combustion, items related to their use, herbal smoking products, electronic cigarettes, refill containers, liquids used in electronic cigarettes, tobacco-heating products (THP) with electronic control, as well as the placement of products of persons whose primary activities involve the production and/or sale of such goods;

2. medicinal products that require a doctor's prescription and/or are prohibited from advertising, as well as medical equipment, methods of prevention, diagnosis, treatment, and rehabilitation, requiring specialized knowledge and training;

3. products, the advertising, production, or distribution of which is prohibited by law.

Furthermore, product placement of gambling is entirely prohibited.

The legislator takes a more liberal position regarding alcoholic beverages and the intellectual property objects under which they are produced, as their product placement in linear audiovisual media programs is allowed, subject to the requirements specified in Part 3 of Article 22 of the Law of Ukraine "On Advertising."

Overall, to avoid negative consequences of advertising through product placement, a set of mandatory requirements will be imposed on programs and content that include it, such as:

1. advertisers must not influence the content of such programs and content, their airtime, or placement in catalogs, as well as the obligations, responsibilities, and independence of entities in the field of audiovisual media;

2. direct encouragement to purchase or rent goods, especially through the placement of special advertising recommendations, is prohibited;

3. excessive importance should not be given to the product being placed (demonstrated);

4. if the program is created by a subject in the field of audiovisual media or an affiliated person or at their request, or user-generated content is created by an individual, viewers must be clearly informed about the presence of product placement in the program or content through appropriate identification.

Detailed requirements for the product placement of specific products will be additionally defined in relevant codes (rules), the adoption of which will be the responsibility of joint regulatory authorities.

Regarding the study of the above-mentioned requirements of the new legislation on product placement, it is important to note that they will apply exclusively to audiovisual media programs and user-generated videos created after January 1, 2024.

A significant difference between product placement and other forms of advertising, under the new legislation, is the absence of a requirement to include warnings and other information of a recommendatory and/or preventive nature, as stipulated in Chapter III of the Law of Ukraine "On Advertising," in audiovisual media programs and user-generated content that include product placement. Also, since product placement will not be considered advertising under the law, rules regarding time restrictions and frequency of its placement or broadcast will not apply.

The above analysis indicates that with the adoption of the new Law, product placement, widely used worldwide as one of the most effective advertising tools, will finally be recognized by the domestic legislator and become legally available for the Ukrainian advertising market, which fully corresponds to contemporary requirements.

Ksenia Rakityanska, lawyer at AC Crowe Ukraine, exclusively for the Legal Newspaper.