Yes this has to be returned.
It is a screen connection issue with the FPC cable, inside the watch.
Flashing firmware will not make any difference. I can give you the firmware if you want to try it, but I have to warn you that it is not like flashing the other watches.
You need different tools, drivers and you have to hold the top button down as you connect the usb to your pc.
But as I said, that is a hardware issue that is normally caused by dropping the watch or similar… This makes the screen behave like your video.
I will ask them to clarify the return policy because it seems unfair to charge you for the return postage.
How long have you had the watch?