Law governing Endorsements: The Global Perspective and its emergence in India

Chinmoy Pradip Sharma

Endorsements have become the most important tool in promoting products and services and have been successfully deployed by brands over past several decades for consumer outreach. The brands, regardless of line of business and size, routinely engage public figures, film personalities, sportspersons and eminent personalities (who are generically termed as ‘celebrities’) as their endorsers in advertisements. Besides grabbing the attention of consumers, engagement of such endorsers creates credibility and goodwill for a brand which people associate with the endorsers. In return, the celebrity endorsers are known to extract their pound of flesh in the form of handsome fee for lending their names to a brand.

Bearing in mind these crucial attributes, use of celebrity endorsers in advertising call for suitable regulation in order to protect the interests of the consumers and keep the unfair and deceptive advertisements in check.

The United States has been one of the pioneers in regulating endorsers. From as far back as the 70s the Federal Trade Commission (the “FTC”) regulated advertisements featuring endorsers through advisories and guidelines. In the year 2000, the FTC issued the ‘Guides concerning the Use of Endorsements and Testimonials in Advertising’. These Guidelines governed TV, print, radio, blogs and word-of-mouth marketing. Broadly stated, the Guidelines requires endorsers not air their experience with a product unless they have tried it or make claims regarding the product without proof. In addition, the Guidelines mandate disclosure of any connection between the endorser and the company marketing a product that would affect how people evaluate the endorsement.

Though the Guidelines are not regulations and no civil penalties are associated with them, the FTC is empowered to investigate whether practices are unfair or deceptive under the Section 12 of the FTC Act which deals unlawful endorsements and false advertisements. The Bureau of Consumer Protection has been set up under the FTC Act as the authority that deals with any such violations.

Due to a need for harmonisation of law relating advertising among its Members States, the EU in 1988 proposed a directive concentrating on misleading and unfair advertising which were conceptualized in terms of the prevailing laws in the EU countries and the FTC Guidelines. In addition, the EU also boasts of a self-imposed code which celebrities adhere to and they refrain from endorsing products which are potentially detrimental to public health. 

In the UK, the Consumer Protection from Unfair Trading Regulations (the “CPRs”) and the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing Regulations (the “CAP”) prohibit the use of advertorials or editorial content that promotes a product without it disclosing in the content in a clearly identifiable manner that the trader has paid for the promotion.  The Competition and Markets Authority (the “CMA”) is the designated regulator which carries out investigations into endorsement related violations. On the other hand, the Advertising Standards Authority (the “ASA”) was set up as the advertising self-regulatory body. 

Nearer home, Singapore enacted the Consumer Protection (Fair Trading) Act) which has stringent provisions governing false and misleading advertisements and companies indulging in such unfair practices are dealt with severely. Advertising Standards Authority of Singapore (“ASAS”) is an industry body which acts as the advisory council and looks into instances of misleading advertisements that impact consumer trust and the industry at large. ASAS also issues guidelines for regulating advertisements.

In India the issue of liability of endorsers for false and misleading advertisements has been in news for several years. The widely-publicised controversy of endorsement of Maggi products (which failed to meet the statutory quality standards) by two extremely well-known film celebrities created a serious public outcry. The Food Safety and Standards Act was enacted in 2006 to restrict advertisements concerning food products where their efficacy is guaranteed without adequate or scientific justification. However, the scope of this Act was restricted to food products. The urgent need for a comprehensive a law to fix liability of endorsers for featuring in advertisements which make false and misleading claims was greatly felt. 

It was only in 2015 that the India woke up to address these challenges with the Consumer Protection Bill. The Bill introduced accountability of endorsers for false and misleading advertisements for the first time. The Bill was introduced in the Lok Sabha and then referred to the Standing Committee. Owing to wide-ranging changes suggested by the Standing Committee, it was withdrawn.

Meanwhile, in April 2017, the Advertising Standard Council of India (the “ASCI”) which is a non-governmental body set up to provide for self-regulation of advertising practices sought to fill up the legislative lacunae through the ‘Guidelines for Celebrity Advertising’. These guidelines were prepared with the objective to regulate the content of advertisements by celebrities. The ethos of the Guidelines is marked by its preamble declaring that advertisements featuring celebrities need to ensure that claims made in them are not misleading, false or unsubstantiated. The definition of ‘celebrities’ is extremely wide in these Guidelines encompassing actors and sportspersons and also extends to doctors, authors, activists and educationists.

As per the Guidelines, the content of endorsements and opinions of a celebrities contained in them are required to reflect their genuine opinion based upon adequate information about or experience with the product or service in question. A celebrity is required to carry out the necessary ‘due diligence’ to ensure that the description, claims and comparisons made in the advertisements are not misleading or deceptive.

The lack of statutory regime was finally sought to be compensated for with the introduction of the Consumer Protection Bill, 2018 in Parliament. The Bill of 2018 was a totally revamped and restructured version. The Bill was introduced in the Lok Sabha and was passed. However, the Bill was not introduced in the Rajya Sabha and eventually lapsed. Later, the Bill of 2018 was reintroduced in the Parliament as the Consumer Protection Bill, 2019 and was eventually passed by both Houses of Parliament in August 2019 (the “Act”). 

The Act contains elaborate provisions dealing misleading advertisements. The Act provides for the establishment of a Central Consumer Protection Authority (the “CCPA”) by the Central Government to regulate matters relating to violation of rights of consumers, unfair trade practices and false or misleading advertisements which are prejudicial to the interests of public and consumers. The CCPA is empowered to carry out investigation through the Director General or District Collector into complaints of an advertisement being false or misleading in nature. CCPA can issue directions to a manufacturer or directly to the endorser itself to discontinue or modify the content of an advertisement if it found to be misleading and also impose a penalty on manufacturer as well as the endorser to the tune of rupees ten lakh. For every subsequent contravention by a manufacturer or endorser, the penalty extend to rupees fifty lakh. 

Additionally, the CCPA has been given the power to prohibit an endorser who is a part of an advertisement found to false or misleading from being a part of any endorsement for a period that can extend to one year. Subsequent violations carry prohibition extending up to three years. Significantly, an endorser cannot be held liable for the above-mentioned penalty in the event that the endorser exercises due diligence to verify the veracity of claims made in an advertisement.

These provisions are a shot in the arm for the supremacy of consumer rights. Till now, besides the ASCI Guidelines and the Food Safety and Standards Act, there was no holistic statutory structure to reign in celebrity endorsers who become a part of misleading advertisements and promotional features. Several such instances have cropped up in the recent past which makes these changes timely and an extremely welcome.

The number of endorsements by celebrities in India is the highest in Asia. It is also equally true that consumers are fascinated and influenced by advertisement containing celebrities. This set the bar for effective implementation of the provisions governing misleading advertisements featuring endorsers very high. Like every law, the Act contains loopholes which can be misused to circumvent the law. One such instance is that the exclusion from liability for an endorser has been left vague and the nature and extent of due diligence is not prescribed. Interestingly, the Bill of 2015 contained a provision for imprisonment for an endorser for being a part of a misleading advertisement which did not find its way into the Bill of 2019.

Though several other countries have had well-structured regulations governing endorser liability for a very long time as detailed above, the newly introduced framework in India is stringent and balanced at the same time. However, there are several lessons to be learnt from the working of the regulatory systems of these countries. The experience of working of the law in the countries discussed above has shown that the best method to ensure compliance of the law is combination of awareness and sensitisation coupled with self-regulation as well as having robust statutory provisions to act as the deterrent factor. For this purpose, the industry body and the statutory have to work in tandem. 

In the US, the FTC works closely with the advertising fraternity in order to keep violations in check. The UK is the best example of solid co-ordination where the statutory authority for consumer protection i.e., CMA and the advertising industry body viz., ASA play a perfectly synchronised role for making advertisements complaint with CPRs along with CAP. Though CMA acts as on complaints and issues pertaining to the consumer industry as a whole, the ASA provides its support on complaints pertaining to advertisements. Instead of acting as a body restricting itself to compliance of the law, the CMA in conjunction with ASA also provides guidance and advisories to companies and advertisers. This mutual co-ordination is also found in Singapore with the government and ASAS working together on awareness as well as compliance.

The CCPA ought to be constituted in a manner that it works closely with the advertising industry and ASCI as is being done by its counterparts in other countries mentioned above. Its role should be dynamic and industry sensitive. This will ensure that CCPA does not become yet another statutory body in the Indian regulatory web.

Given the change in the scenario in India with respect to law relating misleading advertisements especially those carrying celebrity endorsers, the ASCI should look to playing a bigger in creating awareness in the advertising industry and aspiring to seek compliance of its Guidelines. 

It is matter of great regret that lately brands and entities have been found to be involved in fraud on consumers. This includes several real estate companies. Such companies have engaged the who’s who of the celebrities to push their projects and products. This scenario has created a lot of buzz surrounding the topic of liability of celebrity endorsers engaged by such companies in order to woo consumers. Endorsers who charge astronomical amounts for advertising contracts have to stand up and take responsibility for their actions of associating themselves with companies who indulge in less than honourable deeds and practices. They can no longer be permitted to raise their hands and claim ignorance or indemnification. The need of the hour is for the newly enacted law and its system to send the message that – if you meddle with dirt, you will end up with hands dirty.

The author is a dispute resolution lawyer practising in Delhi and is a keen observer of law, polity and judicial process.