At present, there are two legislations which deals with the regulation of advertisements – The Consumer Protection Act, 1986 and the Cable Television Networks (Regulation) Act, 1995 (the CTN Act). Besides this, the Food Safety and Standards Act, and also, the Drugs and Cosmetics Act regulate a limited aspect of advertisements so far as they relate to the above legislation. While the CTN Act is the broader legislation which deals with advertisement and their societal impact, the CP Act deals only with misleading advertisement and seeks to avoid their impact on the consumer. However, none of these legislations has any direct liability affixed on the endorser in case the product endorsed is deficient or defective.
The CTN Act prescribes that any advertisement that is transmitted through cable service is to be compliant with the Advertisement Code. While the Act itself does not provide the said code, the Cable Television Network Rules, 1994 (the CTN Rules) prescribes the same. The CTN Rules, in turn, refer to the CP Act by stating that:
The goods or services advertised shall not suffer from any defect or deficiency as mentioned in the Consumer Protection Act, 1986
The CP Act, in turn, does not deal with advertisements which are per se 'misleading advertisements'3 . However, it does refer to various 'representations' which may constitute 'unfair trade practices.' Still, there is no mention of liability on the part of an endorser. Therefore, as it appears up until now there has been a legislative vacuum in dealing with the liability of endorsers in respect of the product endorsed.
An interesting find in the CTN Rules is Rule 7(9) which states as follows:
No advertisement which violates the code for self-regulation in advertising, as adopted by the Advertising Standards Council of India (ASCI), Mumbai for public exhibition in India, from time to time shall be carried in the cable service.
The Advertising Standards Council of India (ASCI) is a self-regulatory organisation which was established in the year 1985 for the regulation of the Advertising industry and to safeguard the interests of the consumers. ASCI is a 'Not-for-Profit' Company which acts towards streamlining the activities in the advertising world. With this objective, ASCI prescribe various guidelines for advertisers, advertising agencies and media broadcasters. Among these guidelines are also a few guidelines prescribed for Celebrity Endorsers.
Following are the broad contours of the guidelines provided by ASCI to Celebrities:
Now, the above guidelines are important and must be adhered to seriously but at the end of the day, ASCI is a self-regulatory body based on positive morality. While there is a mention of the ASCI guidelines in the CTN Rules, ASCI itself has not been vested with powers to regulate the advertisement sector. In its FAQ, ASCI has accepted that violations by advertisers continued in at least 8% of the cases despite decisions by 'Consumer Complaints Council' (under ASCI) to take down the advertisements. In fact, in ASCI's own words:
The Code is not in competition with law. Its rules and the machinery through which they are enforced are designed to complement legal controls, not to usurp or replace them.
Yet some weight has been given to the ASCI code by various courts from time to time.4
On the other hand, if reference may be had to the CTN Act again, powers have been vested with the Central Government and an 'authorised officer' under it, to prohibit transmission of advertisements which are not in conformity of the advertisement code provided under Section 6 read with Section 22 of the CTN Act and Rule 7 of the CTN Rules. Still, the Act and Rules thereunder do not provide for any direct actions against an 'endorser'.
Under the CP Act, at present, the redressal fora have got the power to direct the advertising party which has misled the consumer to issue a corrective advertisement. Only when such party fails with the direction of the redressal forum that the forum can impose penalties which may include fine as well as imprisonment. It is pertinent to note here that the CP Act in its current form does not include endorsers within its ambit.
In contrast, the new bill very specifically grants power to the Central Authority to issue directions, in respect of 'false or misleading advertisements', not only to advertisers and advertising agencies but also to the 'endorsers.' The Bill although does not defines 'endorsers', however, there is a definition of endorsement provided in the bill. The definition of 'endorsement' gives an idea that an 'endorser' could be anybody who makes a representation in an advertisement as to a finding or experience about the product being advertised. Thus, it is a broader class of person who would be kept in view by the consumer while making their decision in buying the endorsed product. It may include celebrities as well as influential persons who may have an impact on the decisions of consumers.
Another contrasting aspect under the new bill is the power of the Central Authority to prescribe penalties, irrespective of the direction to discontinue or modify the advertisement. These penalties may extend to Rs. 10 lakhs and may reach up to 50 lakhs in case of subsequent contraventions. Not only this, the Central Authority has been vested with further power to impose ban specifically on an endorser from making any endorsements for a period which may extend up to three years.
There is a clear indication that the new bill intends to fill the gaps which are existing in the CP Act in its current form especially in respect of Celebrity endorsements.
In the United States of America (US/USA) a statutory agency under the name Federal Trade Commission has been vested with the power to regulate the advertising sector. Such power is vested under an umbrella provision (Section 5) to curb unfair trade practices. The Federal Trade Commission Act very broadly declares any 'unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce' as illegal. The Act further empowers the Commission to prevent persons, partnerships, or corporations (with a few exceptions) from using such practices.
In order to complement the above legislative powers, the FTC has come out with Endorsement Guides from time to time, so as to guide the advertisers, endorsers and other intermediaries about dos and don'ts. In 2009 these Guidelines were revised to keep pace with the changing face of advertisements in IT-based solutions.
The Guide sets out its purpose as being an interpretative tool for the implementation of provisions of the FTC Act. Although, the FTC website5 very clearly states that the Guides are not regulations, and so there are no civil penalties associated with them. However, if advertisers don't follow the guides, the FTC may decide to investigate whether the practices are unfair or deceptive under the FTC Act.
The provisions under the FTC Act as highlighted are very board to cover anyone within its ambit who after an investigation is found to be involved in unfair, deceitful practices. This provision by its very nature covers 'endorsers' within its ambit in respect of 'misleading advertisements'. Here, the Guides provide that the party whose opinions, beliefs, findings, or experience an advertising message appears to reflect will be called the endorser and may be an individual, group, or institution.
The Guides further go on to hold that advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers. And endorsers also may be held liable for statements made in the course of their endorsements.
The Guides, however, detail out with examples various guiding principles to be kept in mind while making endorsements. A few of these principles are broadly set out herein below:
(a) Endorsements must reflect the honest opinions, findings, beliefs, or experience of the endorser and must not be deceptive. (b) The endorsement message must be in context and should not distort in any way the endorser's opinion or experience with the product. (c) An endorsement of an expert or celebrity may be used only so long as it has good reason to believe that the endorser continues to subscribe to the views presented. (d) When the advertisement represents that the endorser uses the endorsed product, the endorser must have been a bona fide user of it at the time the endorsement was given and must continue to do so long as the advertisement is running. (e) No false or unsubstantiated statements should be made through endorsements. Also, there are liabilities for failing to disclose material connections between themselves and their endorsers.
In the US, a lot of responsibility has been placed on the advertiser and endorser to ensure compliance with the above guides. The FTC has been vested with the power to issue cease and desist orders against violators. Further, the power to impose penalties in case of violation of such orders has also been provided.
Additionally, the FTC Act under Section 12 also very specifically makes false advertisements illegal. The Section further goes on to qualify false advertisement as an unfair or deceptive act or practice in or affecting commerce within the meaning of Section 5.
In the UK the regulation of advertisements is multi-faceted. Like in India, in the UK there are self-regulating agencies like the Advertising Standard Authority (ASA), at the same, there are other Governmental Agencies who have wider power to act more strictly with better sanctions. The advertisements in the UK are regulated by the Consumer Protection from Unfair Trading Regulations 2008 (under the European Communities Act, 1972). Regulation 3 of the said Regulations prohibits unfair commercial practices. These unfair commercial practices may include misleading actions and omissions. A commercial practice may be a misleading action, inter alia, if:
Here all the features and circumstances of commercial practices are included.
Therefore, as it is apparent from the above, the Regulations are very wide in their wordings and are likely to import all circumstances of endorsement within its ambit so long as they are likely to contravene any of the above provisions. In this respect, it may be noteworthy that Schedule I to the Regulations very specifically incorporates instances which shall in all circumstances be treated as unfair:
Claiming that a trader (including his commercial practices) or a product has been approved, endorsed or authorised by a public or private body when the trader, the commercial practices or the product have not or making such a claim without complying with the terms of the approval, endorsement or authorisation.
All the above-identified unfair practices are treated as an offence under the Regulations, liable for prosecution. If the traders are found guilty, they shall be liable for statutory fine or imprisonment of two years or both. Here traders include a person acting in the name or on behalf of a trader.
Although, the above Regulations are what should keep the advertisers in line and restrict them from making any misleading representations, still there a number of softer measures put in place which act as a deterrent and avoid direct penalties. One such measure is the self-regulation by ASA as referred earlier. ASA prescribes various codes for an advertiser to follow, namely – the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing (CAP Code) and the UK Code of Broadcast Advertising (BCAP Code). While the former is for the regulation of ad campaigns in print or online, the latter is to regulate TV and other media.
Section 3 of the BCAP covers various aspects of misleading advertisement and in a way acts a guide for the advertisers in knowing what not to do. In determining what may comprise a 'misleading advertisement' the BCAP code takes into account the Consumer Protection from Unfair Trading Regulations 2008. The BCAP code holds that testimonials or endorsements used in advertising must be genuine and be supported by documentary evidence. Further, the BCAP Code provides that advertisements featuring an individual should not imply that that individual endorses a product if he or she does not.
Again, ASA rulings like ASCI are based on positive morality. While this ruling finds mention in the Legal and Regulatory Framework of the UK, they are not based on strict sanctions. The maximum ASA can do, to make an advertiser comply, is to seek interference of the broadcaster to pull-out the advertisement in question. However, ASA, unlike ASCI, may turn into a whistleblower when all else fails. In these situations, ASA can refer the matter to Trading Standards or OfCom who actually implement the above-stated Regulation by way of investigation, prosecution and enforcement.
Additionally, under the CAP (non-broadcast) code the ASA provides following broad advice when featuring celebrities:
One of the important defences laid down in the Consumer Protection Bill for celebrity endorsement is due diligence. Due Diligence means taking reasonable steps to avoid committing an offence under the Bill. Similar provisions are also seen in the UK where the Consumer Protection from Unfair Trading Regulations 2008 very specifically provides for 'due diligence' as one of the defences against offence under the said Regulations.
The UK law merely requires the trader to show that the offence was committed due to mistake, accident or cause beyond his control or that on the basis on the reliance of information supplied by someone else and that all reasonable precautions and due diligence were exercised on his part. Similarly, in India, a provision has been incorporated under Section 21(5) of the Consumer Protection Bill as well. The said provision holds due diligence to verify the claims made in the advertisement as a valid defence against penal liability.
However, a question arises as to what actions may constitute due diligence which should be sufficient enough to skip the liability. The present ASCI code holds that a request for review of the claims by ASCI may be considered as exercise enough to qualify as due diligence. However, statutorily nothing is present on record that to suggest that the same is enough. Although, some weight has been given by Courts from time to time to the ASCI codes.
Speaking legally, an exercise of due diligence is based on common prudence of a reasonable man. Any due diligence is the exercise of general prudence and does not require extraordinary knowledge. The line of thought generally involved is – what would a man of ordinary prudence want to know about the products or claims while making such claims.
The second aspect is – if there are claims being made – an endorser should ask if those claims are true. To establish the veracity of the claims the endorser should ask for measurable results from independent agencies. Due diligence, therefore, is investigative and requires an endorser to ask questions and not blindly follow the claims made by the advertisers.
Lastly, an endorser after exercising its prudence should secure itself through declarations of the advertiser that the claims made are true and that, he/she will keep the endorser indemnified in case of any default.
While the obligation to exercise due diligence has been placed on the endorser, not all endorsers are in a capacity to do such exercise, given the limited knowledge of the law and the products. Accordingly, a better approach in such circumstances is to approach a legal expert and seek their assistance for comprehensive coverage of all aspects. It will conclusively help in understanding the nuances of the field as well as fulfil the obligation to exercise reasonable due diligence.
The CP Act in India is an evolving piece of legislation. With each individual step, it is moving towards achieving the international standard of advertisements and consumer care. Like, in the UK and US, India has adopted very clear and stringent regulations for placing responsibility on endorsers to act reasonably and cautiously.
However, as we have seen above, the Legislations in the UK and US are broader and cover a wide range of issues. This, as it appears, is with a view to regulate the changing scape of modern advertising. The need to protect the consumer not just from misleading advertisement on broadcasting medium but also online for a is the need of the time. As seen in the UK and the US, the Legislations are also sensitive to the endorsements made through online modes like blogs, and platforms like Facebook and Instagram. The FTC Guide on endorsements very specifically regulates such aspects.
Further, the US and UK framework are very sensitive to the fact of disclosure of the relationship between the advertiser and the endorser – it forms a piece of material information for disclosure. In India, these aspects do not still find mention in the new piece of legislation. Accordingly, there is a need to step up the game for the government machinery if it wants to really keep a tab on the misleading and unfair practices.