Celebrities to face consequences for endorsements gone wrong, but a loophole exists

S Murlidharan

Company law contains deterrent provisions in relating to a prospectus, to avoid the investing public being misled by expert opinions. These are to ensure that anybody invests in a company based on its fundamentals rather than being bowled over by the personality of an expert.

It says that experts must have given their consent which must form part of the prospectus.  They must be disinterested, that is they should not promoters themselves or directly or indirectly be related or connected to them.  If the public is done in by the celebrity’s opinion, they can seek damages for loss caused due to investments gone sour in addition to hauling the celebrity over the coals for criminal liability.

Along with investors, now consumers too may be able to move against celebrities. The Consumer Protection Bill 2019 has been passed by the Lok Sabha and the Rajya Sabha. The Bill mistakenly considers an ‘endorser’ (it studiously avoids the use of the word ‘celebrity’) to be an expert, if an advertisement makes the consumer believe that it reflects the opinion, finding or experience of the endorser.

In reality, people are in awe of celebrities and take their word at face value, even if in their hearts they know the celebrity isn’t an expert.  Therefore the solution should have been a disclaimer that could read, ‘The endorser isn’t an expert and is endorsing this product or service for commercial reasons’, if only to awaken consumers from their illusions.

This would be similar to the disclaimer in cigarette packets ‘Cigarette smoking is injurious to health’.  The UK regulations can be cited as precedent in this regard.  The online endorsers must make it clear if they have been paid for their gushing tributes.

The main reason why celebrities endorse products is to earn endorsement fees, and not because they have an expertise in that field. The consumer law seems to have gone over the top in its keenness to make celebrities accountable for their endorsements.

What it should do instead is to tell consumers that celebrities are singing paeans of brands they are endorsing for fees. Period.

At any rate, celebrities cannot keep on revising or qualifying their endorsements like credit rating agencies do for companies they have rated.  Indeed celebrities are not equipped for that role. Therefore no amount of prior due diligence can help unless it is a constant year-round due diligence. in a manner of life-time warranty offered by certain brands.

A mild and first step that the central authority constituted under the Consumer Protection Act can take, in the face of misleading advertisements, is to pass a cease and desist order on the manufacturer, distributor, trader, publisher and the endorser.  It might also alternatively ask them to modify the misleading advertisement.

It has the power to skip the first and mild step and straightaway proceed to impose a penalty of Rs  10 lakh on any of them for the first offence and as much as Rs 50 lakh at its discretion, for repeat offences in perpetuating the misleading nature of the advertisements.

It also has the power to skip the above two steps and straightaway go to the third step, which is very severe since it bars the endorser from endorsing any brand for a year, and in the case of repeat offences, then for three years.

The penalty and bar against endorsing cannot be imposed, the law goes on to say, if the endorser has exercised due diligence.  Now this is admittedly a grey area. What is due diligence? Can due diligence be ever made of what goes on inside a promoter’s little devious mind?

Could MS Dhoni the celebrity cricketer have fathomed the crookedness in the minds of the Amrapali promoters which ultimately resulted in the homebuyers of the Amrapali group being shortchanged? What is due diligence then begs the question.  Is an endorser supposed to take an expert opinion so that when accosted he can wriggle out by pointing to the expert opinion obtained?  Ironically the Bill is silent on whether the expert can be proceeded against instead of the celebrity.

The bottom line is that a seemingly solemn law threatens to fizzle out into nothingness, at the altar of the nebulous concept of ‘due diligence’.

Instead, the law could have simply focused on educating the public that a celebrity is not an expert and then make the celebrity admit that he is not. Instead it has resorted to grandstanding to show that it is getting tough on the rich and the famous.

The Federal Trade Commission exhorts endorsers to share their experiences instead of giving a gushing endorsement (https://www.ftc.gov/news-events/media-resources/truth-advertising/advertisement-endorsements) and grants that there are in any case no civil penalties on the celebrities though the advertisers themselves may be investigated for unfair trade practices.

S Murlidharan is a chartered accountant and columnist. Views are personal.