Celebrity Endorsement and Legal Liability

Recent ban on Maggi has kindled the debate on celebrity endorsement. Court has directed to lodge FIR against celebrities who have endorsed the product in past. While consumers seem to be divided on the opinion on whether such move is good, celebrities have come cautious on this and have stated that endorsement must be done with caution.

Maggi is not the first case to be tried out for false advertisement. There have been several cases where the regulators have held companies for wrongful advertisements. http://www.ascionline.org/images/pdf/advisory-to-tv-channels-for-advertisements.pdf

However, this controversy caught national attention as its consumers are from all caste, creed, age, and gender! It is a house hold product in India and is a product popular not only in urban India but also in the rural market.  It came to Indian market way back in 1982 but was not so popular then. However, 26 years later, Maggi rules the roost, with more than three-fourths of the 2,500 crore market in the bag, as of September 2012.

In India, laws like the Consumer Protection Act and Food Safety and Standards Act protect consumers against false claims and advertisements, and celebrities could be held liable under these laws. In courts, public interest has triumphed even at the cost of commerce. In 2008, Madras High Courts held that it cannot continue to follow old English precedents, which recognised the right of manufacturers to indulge in puffery while advertising their products. Be it the market regulators like SEBI or  sectorial regulators, they all have made conscious effort to protect consumer interest. This reflects in the decision by the Central Consumer Protection Council (CCPC) that has decided to hold celebrities responsible for wrong claims made in adverts.

The rationale behind CCPC’s decision to hold the celebs liable is plain and clear.  In India, 50% of advertisements are celebrity endorsed and there are ample of research to show that such endorsements translate into huge profit for companies. Considering India’s illiteracy, which is the largest in the world, one can safely assume that celebrity endorsements govern consumer choice for people who are less educated. A deep rooted “personality- cult” exists our country and there are some celebrities who have assumed a larger than life, “god- like” image! Past study has proved that endorsement by such celebs has a huge impact on the buying behaviour of the consumers.

For celebrities, brand/product endorsement has been a lucrative business till now. They could monetize their own brand value to yield profit to other brands. The fee for such endorsement ranged  as high as 5 to 6 crores. A US Consultancy firm “American Appraisal” in a study on celebrity brand valuation in India estimated ShahRukh Khan to be worth $100-million, the highest among any other celebrity. He is estimated to charge around Rs 3.5-4 crore per brand.  Thus, we see that there is a lot of commerce involved in this endorsement business.

If such deals are done between the parties who have equally strong& powerful bargaining power, should they both not be liable for product quality and safety? Should law show any laxity to those who make money from adverts, at the cost of human safety?

The Consumer Protection Act, 1986 under Sec 2 (1) (r) makes unfair labour practices which also includes misleading advertisements punishable. Sale of Goods Act provides that goods must be of merchantable quality and match the description.  Food Safety and Standards Authority of India Act mandates that food must not be hazardous to human health. Consumers cannot bargain out of this even if the goods are given at low price. The Contract law specifically provides that where a false representation is made to induce a party into a contract, the misrepresenting party is liable for its “misrepresentation”. The Indian Penal Code makes wilful misrepresentation and criminal negligence an offence. Seen through the lenses of law, the liability for celebrity endorsement is well found.

In Hong Kong, Law on Protection of the Rights and Interests of Consumers has a new clause that “Social groups and individuals who endorse products or services that cause harm to consumers should be jointly liable with the producer of the product or service provider”. This has made tough for the celebs to walk off with their fee and brush off any liability for endorsing a wrong product.

In USA, endorsements are subject to the regulation and oversight of the Federal Trade Commission (FTC). Section 12 of the FTC Act deals unlawful endorsements and false advertisements. Further, FTC has clarified that “If the advertisement claims the celebrity uses the product or service, the celebrity must in fact be a bona fide user, and the advertiser can only use the endorsement so long as it has a good faith belief that the celebrity continues to hold the views expressed in the advertisement.”

There are many other jurisdictions that have placed liability on celebrities for their  false endorsement. A point of caution here is that law must create room for brand advertisement and creativity. It should distinguish between puff and sale gimmicks and ensure that it does not make puffs and gimmicks can be allowed.