The Legal Framework For Celebrity Endorsements

Celebrity endorsement or Influencer marketing is kind of a partnership between a company and a celebrity for promotion of the company’s product(s) or service(s) through marketing, social media campaign & advertising strategies.  The glamourous persona of celebrities or influencers is greatly admired by consumers and hence, companies are seen spending hefty sums to have well-recognized personnel from different industries represent their brand. The recognition, respect and trust that the celebrities or the influencer command, enhances the brand value and helps bring the product and/ or service to the forefront in the commercial markets. Needless to say, today the kind of footfall celebrities or influencers have on people, such commercial engagements are likely to drive sales for companies. When celebrities or influencers promote a product, people are prompted to buy the same either directly or subliminally, thus helping brands/companies with direct sales and/ or profit. Often, endorsements inspire confidence and can be the differentiating factor amongst different brands competing in the same industry.  Therefore, celebrity-focused brand endorsements are said to help companies garner visibility and gain viewership, while also helping develop the overall valuation of the Company. There are arrangements where the Celebrity takes a partnership/share in the Company only in exchange of the endorsements or name they provide.

Celebrity Endorsements under the scanner

Though having a celebrity in an advertisement gets instant recall and recognition amongst the public, however, there is also a downside to it if such a relationship lacks ‘Ethics’ and/or required ‘Legal Compliances’.

Ethics and caution are often compromised or rather ignored by celebrities or influencers while signing up for endorsements and that leads to legal implications for both parties to the endorsement agreement. Lack of due diligence on part of either party can result in adverse ramifications, which can cause legal and reputational damages to the brand and the celebrity or influencer. Few examples of famous brands and celebrities facing the heat for lack of due diligence:

• Three famous Bollywood stars who were brand ambassadors of Maggi, were summoned by regulatory authorities and faced the heat for endorsements after the product was banned from Indian markets by the Food safety regulator[¹] for containing dangerous and impermissible amounts of Monosodium Glutamate (MSG). This pressed upon the need for celebrities to be more meticulous and responsible while signing up for endorsements as they directly impact the health and well-being of people. The Food Safety and Standards Act, 2006 in Section 53 lays down the penalty for misleading advertisements which may extend to a fine of ten lakh rupees.[²]
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• Bollywood actors have for years endorsed fairness creams, which has been criticized, by civil society bodies, by regulatory authorities, courts and many international associations. Such endorsements are criticised for their blatant promotion of a certain skin tone or complexion promotion to highlight the preference of a certain skin tone or complexion over and promoting an inappropriate social bias. Such endorsements have been questioned for supporting an agenda that encourages discriminatory behavior, which is in contravention to the basic human and fundamental rights of individuals.
• Real estate developers often turn to top celebrities or influencers to attract homebuyers. While celebrity endorsements are used as a marketing gimmick to build trust and earn credibility. However, when such acclaimed projects are not completed or pushed beyond reasonable delay, it brings forth bad repute, leaving behind a whole lot of aggrieved homebuyers. In many such cases particularly in the NCR region of India, leading cricketer(s) and Bollywood actors have faced the brunt with FIRs filed against them on the pretext of misleading consumers alongside false claims by developers.  In one of the cases, involving a leading Indian cricket player, an audit report was submitted to the Supreme Court of India, wherein it was observed that the real estate group also used companies linked to the cricketer for making payments. Not only does this indicate a failed due diligence on part of the cricketer but highlights the aspect of a possible conflict of interest situation.

The Legal Frame

With technology seeping into every aspect of today’s life, the marketing and promotion of products and services have drastically changed with more companies reaching out to celebrities or influencers for promoting their brands on TV or social media platforms.

It is important to ensure that claims made in the endorsements are not unsubstantiated or misleading to protect and safeguard the interests of consumers at large.

In 2017, the Advertising Standard Council of India (ASCI), a body committed to the cause of Self-Regulation in advertising came up with ‘Guidelines for Celebrity Advertising’[³].

The preamble of the guidelines mentions "advertisements featuring celebrities need to doubly ensure that claims made in it are not misleading, false or unsubstantiated; so as not to harm the interests of the consumers, especially for products or services which can cause serious financial loss and physical harm". The guidelines put the onus on the advertiser and the advertising agency to ensure that celebrity brand endorsers are aware of ASCI codes.

In May 2021, ASCI released ‘The Guidelines for Influencer Advertising’ on digital media platforms, which include:

1. Disclosure: All advertisements posted by social media influencers or their representatives, on any of their accounts must carry a disclosure label that clearly points it out as an advertisement. In case of any material connection (not necessarily monetary) between the advertiser and the influencer, such information is to be disclosed and in absence of any material connection, the influencer talking about any product or service will not come under the purview of advertisement. Hence disclosure won't be required. All disclosure should be clearly visible between all the hashtags and links, in a way that cannot ordinarily be overlooked by viewers.
2. Due Diligence: The influencers need to be sure about the credibility of the claims that the advertiser is making regarding the product or service, before promoting or posting about the same on their own platform.

The Consumer Protection Act, 2019 (“New Act”) notified in July 2020, replaced the Consumer Protection Act of 1986. The New Act has been introduced to strengthen consumer interests, with the establishment of regulatory authorities for the settlement of consumer disputes, and provides for the timely and effective administration of such disputes. It establishes the Central Consumer Protection Authority (“CCPA”), “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 [⁴]

The CCPA under the Department of Consumer Affairs has notified ‘Guidelines for Prevention of Misleading Advertisements and Endorsements for Misleading Advertisements, 2022’ on 9th June 2022 (“the Guidelines”). The Guidelines have been introduced with an[⁵] objective to curb misleading advertisements and protect the consumers, who may be exploited or affected by such advertisements. In addition to requirements of disclaimers and restrictions on exaggerating features of a product or service, the Guidelines have laid down certain duties for the service provider, manufacturer, advertiser, and the advertising agency to ensure that proper due diligence is carried out prior to entering into the endorsement agreement. A thorough due diligence on part of both the brand and the celebrity or influencer is expected to bring transparency, accountability and clarity in the way an advertisement is published or run. As per the Guidelines, the CCPA can impose a penalty of up to 10 lac rupees on advertisers, manufacturers, and endorsers for misleading advertisements. To enhance the level of accountability, the CCPA may impose a penalty of 50 lac rupees for subsequent violations. Furthermore, endorsers of misleading advertisements can be prohibited from making any kind of endorsement for up to one year and three years in case of subsequent violations. 

This change in law and policy demonstrates the importance of legal due diligence as part of endorsement or advertisement agreements. It makes it the endorser’s personal ethical responsibility to take adequate measures to know details about the brand and the product or service being endorsed. 

Importance Of Due Diligence and Legal Checks by Celebrity

As per a news report[⁶] the Advertising Standard Council of India (ASCI) received the most complaints against ads in 2021-2022, from five major categories- healthcare, education, cryptocurrencies, personal care, and online gaming. More than five thousand complaints were processed across digital and print media with 33 % complaints against objectionable ads from the education sector. It has also been pointed out that complaints against influencer- led ads constitute close to 29% of the grievances.

According to ASCI, out of the complaints against ads featuring celebrities that were termed as misleading, only in a few cases the celebrities could demonstrate that they had conducted some form of due diligence on the products they endorsed. Cases regarding endorsement of fairness creams, chewing tobacco, gambling apps as well as alcohol ads guised in the form of soda ads (surrogate advertising) have not only affected the social image of the celebrities involved but have also led the brands to lose consumer trust. Since the crux lies in making the entire framework of consumer protection- transparent, fair, and reasonable, the onus is on the advertisers, manufacturers, and endorsers for ensuring due checks and caution against unrealistic and unreasonable claims about a product.

It is crucial for endorsers to conduct a complete background check of the brand and the product and/ or service prior to entering into any form of advertisement arrangement. The following are some of the elements one must consider from a legal standpoint prior to entering into a formal engagement for brand endorsement – 

• The endorser must clarify its stance against any form of false or unsubstantiated statements pertaining to the endorsement.
• The endorsement agreements must be explicit and include all required details regarding the brand, product, celebrity, and nature of his/her association. 
• Disclosure regarding any material connection between the advertiser and the celebrity or influencer. Therefore, whether the product or service is received for free, at a discount, or via some other sort of contract, must be explicitly disclosed. 
• Endorsements must reflect honest opinions, findings, experiences and beliefs of the endorser. 
• The contract must include disclaimers if any, which must be displayed upfront and prominently to protect the brand as well as the celebrity and protect an average consumer from being misled. 
• The duties that the celebrity is expected to perform, as well as the duties of the brand must be clearly stated. 
• Costs and fee must be spelled out including expenses relating to photo shoots, video shoots, narration, social media post duration, etc., and extra caution shall be practiced when it comes to endorsing healthcare and wellness products.

With the increased scrutiny on celebrity endorsements, legal experts shall take charge and ensure all precautions while drafting and reviewing endorsement contracts to avoid litigation and bad publicity to the celebrity, like ensuring that the statements made in endorsements are not misleading, that a particular brand is not detrimental to the wellbeing of users, or the nature and use of the product is not breaching any legal provision. The due diligence requires a multi-lens view, with advertising, technical and most importantly, legal analysis which leads to an in depth and professional review of the brand and its product, to promote the culture of responsible advertising.

The Legal Due Diligence Checklist:

• Corporate Profile: It is important to seek details of the company that is promoting its brand, pertaining to a summary of its business activities, details of incorporation and registration, directors and key personnel, assets, etc. This will give the endorser/agency a fair idea about the credibility of the company.
• Financial Credibility: Particularly in the case of a company providing service or a real estate developer, the aggrieved home buyers will certainly not appreciate a celebrity promoting the project, while the developer continues default delivery on the properties due to its buyers.
• Licensed Activities of the Brand/Company: Examining the licenses and permits issued by government or regulatory authorities pertaining to the activities of the company in relation to its business. This determines whether the company is following legal standards and is not engaging in illegal activities.
• List of Company Policies in Place: The guidelines pertaining to employees/personnel associated with the brand, workplace health and safety, corporate social responsibility, data privacy, anti-money laundering compliance. These highlight the ethics and vision of the company and the culture it seeks to promote through its brand products and services.
• Trademark Ownership & Control: This will prove that the company is the exclusive owner of its trademarks or other intellectual property and that there are no disputes on the trademark between the Company and a third party.
• Product’s compliance to Law and Policy on Diversity & Inclusivity and Human Rights.
• Seek Indemnity and Legal Declarations: it is important that the company indemnifies the endorser or an agency and to hold harmless with respect to any actions by a third party or a regulatory/law enforcement authority related against production, distribution or promotion of its products and services.

[1] Food Safety and Standards Authority of India (FSSAI)

[2] https://fssai.gov.in/upload/uploadfiles/files/FOOD-ACT.pdf

[3]https://lexcomply.com/rsjadmin/news/201705012438Press%20Release%20ASCI%20issues%20Guidelines%20for%20Celebrities%20in%20Advertising.pdf

[4] Section 10(1) of the Consumer Protection Act, 2019

[5] https://pib.gov.in/PressReleasePage.aspx?PRID=1832906

[6] https://www.moneycontrol.com/news/trends/ad-regulator-records-highest-complaints-in-education-crypto-gaming-more-celebrity-ads-under-scanner-8748411.html