Heroes or profiteers?
‘Professional complainers’ and the Chinese consumer protection regime
Grocery trolls. Fraud fighters. Blackmail merchants. Consumer activists. Professional pests. Counterfeit hunters. These are all labels that have been variously applied to those individuals and enterprises whose business models rely on seeking out consumer products breaching food safety, labelling, advertising, or consumer law provisions in order to obtain compensation.
These ‘professional complainers’ (my go-to label) have come to play a de-facto role in market governance in China. Yet their burgeoning ranks and increasingly efficient practices have created commercial hazards aplenty and calls for an official/judicial rebalancing to address their extortionary tendencies.
One person's freedom fighter is another person's…
Professional complainers find their origins in the early days of China’s nascent market economy. A patchy consumer rights regime, limited government capacity to ensure consumer safety, and producers seemingly operating with near impunity led to the public seeking outlets to share their tales of consumer woe. Digital channels (QQ, China’s Twitter equivalent) and public shaming forums (CCTV’s ‘315’ program) allowed complainants to highlight fraudulent and defective products in service of the greater good.
An inflexion point came in 2015 with the introduction of The Advertising Law and The Food Safety Law, which increased the available penalties and punitive damages payable to the complainant. Damages worth at least ten times the purchase price of the non-conforming goods gave rise to a whole new breed of professional complainers.
Since then, professional complainers have developed efficient assembly lines and templated communications to target manufacturers in the first instance. Spotters are trained to identify vulnerable products and common ‘gotcha’ label missteps, which are often minor e.g. incorrect location of ™ or ® marking. They will then seek a negotiated settlement and escalate to administrative complaints or lawsuits if parties do not concede to their demands. Complainants often purchase large quantities of the compromised product and file official complaints across multiple locations to maximize the return on their investment.
When activists become trolls
It’s been observed in judicial circles that the activities of professional complainers are a “double edged sword”. On the one hand they are a vast force that supplements the limited inspection capabilities of government agencies and arguably create further incentives for producers to comply with the consumer protection regime. Yet they have a clear tendency to abuse the intended function of administrative and legal bodies, turning them into tools for profiteering.
Professional complainers tend to focus on minor labelling discrepancies, rather than substantive quality or safety issues, because the former is easier to establish and fits neatly into their streamlined business model. Yet it is the latter kind of infractions, as exposed by various food and vaccine scandals, that have the gravest bearing on public health.
The effect of these professional complaints is to clog administrative and judicial enforcement channels with vexatious (though lucrative) mislabelling claims. AmCham China reports that some enforcement authorities believe up to 80% of their workload is the result of professional complainers. At the same time, the threat of vexatious litigation can have a decelerating impact on genuine product and packaging innovation, with increased labelling compliance burdens having the effect of delaying product launches, or entirely precluding the launch of some imported products. Alternatively, producers take on the risk of compensation payouts and potential product recalls as an additional cost of doing business.
Towards a re-balancing
There has been a subtle shift in the official language around professional complainers and a recognition that their activities are sometimes not aligned with the purpose of the consumer protection regime, which at its heart is concerned with driving economic growth by supporting consumer confidence and consumption.
For instance, seven regulatory departments in Shanghai involved in enforcing various advertising and food safety regulations released guidelines in 2018 which encouraged decision makers to take into account the “true purpose” of each complaint. Is there a genuine grievance with respect to a faulty product? Or is the complainant profit driven, as indicated by the fact they have purchased large quantities beyond what is required for daily consumption and filed multiple complaints?
Proposed legislative changes have also similarly touched on the notion of a qualifying ‘consumer’. The draft Implementing Regulations for the Consumer Protection Law released in 2016 appeared to disqualify entities motivated by profit from the definition. Although these Implementing Regulations never made it beyond draft form, echoes of its view on for-profit complainants have been seen in various court decisions.
We have also seen recent additional efforts to check the influence of professional complainers in major cities. In March 2019 several administrative bodies in Shanghai jointly issued a list of exempted minor breaches relating to food safety, amongst other areas. The list gives Shanghai authorities the discretion to withhold administrative punishment in cases where the violation is minor (as defined by the list which includes such things as the use of superlatives to describe a product), is a first time offence, and is rectified in a timely manner.
What to make of these muted signals? In our view, the authorities wish to recalibrate the fine balance of interests by both encouraging complaints against substantively defective products, whilst also avoiding the appearance of support for the cottage industry that has developed around professional complainers.
Despite the more recent developments to curb the extortionate tendencies of professional complainers, their capacity to create real damage and disruption for product manufacturers remains. High profile international brands primarily focused on modern trade channels are a focus for the pros. Here are some steps you can take to help mitigate the risk.
- Risk assessment – understanding the specific risk matrix for your business based on the industry, channels, product, and brand identity and profile.
- Internal training and awareness – a belt and braces approach would integrate legal / compliance teams into the pre-launch review and clearance of new products and activations. Given this is sometimes not practical or possible, it is important that marketing and product teams have some basic knowledge of key labelling and advertising issues for your specific industry and products.
- Have a crisis management plan in place – be prepared for the attack and how you will respond to it, including a PR plan and key account / customer communications.
- Public relations and lobbying – the narrative around professional complainers is subtly shifting, from hero fraud fighters to extortionists. Keep in mind the fine balance that the authorities wish to maintain, but be sure to emphasize in industry and official forums the consequences of vexatious minor technical claims.