Celebrity endorsements and liability under the Consumer Protection Act, 2019

As technology seeps through every aspect of the 21st century, there has been a drastic change in the way products and services are being marketed and sold. Of late, celebrities have often become the ‘go-to’ for large companies/brands when it comes to targeting a relevant audience to promote their products. Thus, celebrities have often become synonymous with the brands that they endorse.

Celebrity endorsers are often referred to as influencers as they add value to the brands, and play an integral role in increasing awareness and influencing consumer choices. As per the Duff and Phelps celebrity Brand Valuation Report 2018[1], celebrity led-endorsements have increased from 650 endorsements in 2007 to 1660 endorsements in 2017, representing a steady compounded annual growth rate of 10%. Also, as per the same report, the total brand value of the top 20 celebrities in India in 2018 was reported to be $877 million i.e. a 13% increase as compared to 2017; with the Indian cricket team captain Virat Kohli retaining his top position amongst the foremost celebrity influencers.

Needless to say, consumer confidence in their favorite celebrities subconsciously makes them select and eventually purchase the products and services endorsed by their preferred celebrity. Therefore, it is important for such celebrities to ensure that the claims made in their endorsements are not misleading or unsubstantiated in order to protect and safeguard the interests of consumers at large.

Although, till date there did not exist a comprehensive law to regulate/monitor misleading celebrity advertisements; the Advertising Standards Council of India (ASCI) Code (“Code”) provided certain guidelines for celebrities. These guidelines provided that the claims made in celebrity endorsements should not be misleading, false or unsubstantiated. As per the guidelines, the celebrities were expected to have knowledge of the Code; while also reiterating that it was the duty of the advertiser and the advertising or other agency to make the celebrities aware of such guidelines. The Code also required the celebrities to conduct sufficient due diligence of the claims and statements in relation to the product/service being endorsed in order to ensure the veracity of their claims. However, the Code, which in any event is voluntary in nature, did not provide any statutory sanctions or penalties for any misleading or false claims advertised by the celebrities.

However, India’s take on misleading advertisements and celebrity endorsements has gained a stronghold with amendments to the three decade old Consumer Protection Act, 1986 which were introduced in August 2019. The Consumer Protection Act, 2019 (“CPA 2019“) now provides for penalties for misleading advertisements made by endorsers. As per Section 21 of the CPA 2019; the Central Authority under the Act may order discontinuation/modification of a misleading/false advertisement which is prejudicial to the interest of the consumer or in contravention with the consumer rights. The Central Authority may also impose a penalty on the endorser of the false or misleading advertisement which may extend to ten lakh rupees (approx. USD 14,000) and up to fifty lakh rupees (approx. USD 70,000) for every subsequent contravention. The Central Authority may further prohibit the endorser of a false or misleading advertisement from making endorsement of any product or service for a period which may extend to one year and up to three years for every subsequent contravention. However, the only defense available to the endorsers to help them evade the sanctions under the CPA 2019 are by proving that they exercised due diligence to verify the veracity of the claims made in the advertisement regarding the product or service being endorsed by them.

These amendments will fundamentally alter the way in which contracts between celebrities and such companies/brands are negotiated and worded. Since the celebrities will now have greater responsibility/liability in comparison with the situation prior to the amendment, lawyers representing celebrities will insist on detailed representations from the brands in terms of product quality as well as compliance with product advertisement related regulations. Celebrities will also seek robust indemnity provisions from brands to cover the potential penalties and legal costs celebrities may incur in future.  It will also be interesting to see how the jurisprudence around the standard of due diligence to be exercised by the celebrities shapes up in the years to come.

All in all, it is safe to assume that this will drive up price for celebrity endorsement contracts in future. These amendments will also ensure that companies and celebrities are more circumspect when it comes to the products/service they endorse and the claims they make. The CPA 2019 will thus ensure greater protection of consumers at large as it reiterates the spirit behind the legislation in the first place; i.e., consumer is king.

Authors:
Nandan Pendsey, Partner
Akriti Kalra, Associate
Ashna Sheth, Associate

Footnote:

[1]https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&cad=rja&uact=8&ved=2ahUKEwjEiIvFh7LmAhWj7XMBHYNVClMQFjADegQIAxAC&url=https%3A%2F%2Fwww.duffandphelps.com%2F-%2Fmedia%2Fassets%2Fpdfs%2Fpublications%2Fvaluation%2Fceleb-brand-valuation-2018.ashx&usg=AOvVaw3AGnkFPfMvgXOekwxOLDZf

 

Date: February 3, 2020