Social Media Influencer – New-age participants in digital advertising

As per a report published by Advertising Standards Council of India (ASCI) the Indian advertising industry reached a size of approximately INR 707 billion in 2021 growing at a rate of 18.6% from the previous year whereas the digital advertising industry reached a market size of INR 213 billion growing at a rate of 35.3%, due to the shift of consumers and business advertisers to digital advertising. Further, as per the sector report published by ASCI for the financial year 2021-22, an overwhelming majority of advertisements in sectors like personal care, food & beverages, and gaming were published on digital platforms including social media platforms such as Facebook, Instagram, and YouTube shorts. Consequent to the increasing popularity of social media platforms, a new category of individuals known as ‘social media influencers’ has evolved, who play a significant role in the making of these advertisements.

Who is a social media influencer?

The term ‘social media influencer’ may usually be used to refer to an individual, including a celebrity, whose services are retained by an advertiser, typically by way of brand endorsement agreements, for the purposes of promoting the advertiser’s goods and services through social media platforms. These individuals may in certain cases have millions of followers and are in a position to influence the purchasing decisions or opinions of their audience.

Laws and guidelines regulating social media influencers

The Consumer Protection Act, 2019 (Act) read with Central Consumer Protection Authority’s ‘Guidelines for Prevention of Misleading Advertisements and Endorsements for Misleading Advertisements, 2022’ (CCPA Guidelines) are the primary legislations governing advertisements by endorsers in India. The CCPA Guidelines are applicable to all forms of advertisements regardless of the medium of advertisement, thereby bringing advertisements on social media platforms within their purview. Further, the term ‘endorser’ is widely defined under the CCPA Guidelines and includes any individual making an endorsement, where the endorsement reflects the opinion, belief, finding or experience of the individual. Accordingly, social media influencers also fall within the ambit of the term ‘endorser’. Additionally, ASCI has also issued the Guidelines for Influencer Advertising in India (ASCI Guidelines). ASCI is a voluntary self-regulatory organization and the codes and guidelines released by the ASCI are non-binding in nature.  Obligations of social media influencer under the applicable laws and guidelines

The Act, CCPA Guidelines, and ASCI Guidelines have placed the following obligations on a social media influencer:

1.  Act and CCPA Guidelines

The Act empowers the Central Consumer Protection Authority (CCPA) to take any steps to prevent false and misleading advertisements, and to initiate an inquiry or investigation into such advertisements, either on its own, or upon receipt of a complaint, or upon receiving directions from the central government. Further, the CCPA is also authorized to issue directions and penalties against false and misleading advertisements. The CCPA Guidelines have been issued by the CCPA in furtherance of such powers with an objective to regulate false and misleading advertisements, including any endorsements of such advertisements.

The CCPA Guidelines prescribe the following requirements on social media influencers while endorsing a product or service:

(a)  conducting due diligence on the product/ services for endorsement of advertisements by: (i) ensuring that the endorsement reflects the genuine and reasonably current opinion of the endorser; (ii) ensuring that the endorsement is based on adequate information or experience with the goods, product or service; and (iii) the endorsement is not otherwise deceptive in any form or manner; and

(b)  disclosing any material connection between the endorser and the advertiser, if such a connection is likely to materially affect the value or credibility of the endorsement, and where such connection is not reasonably expected by the endorser’s audience. The CCPA may impose a penalty of up to INR 1 million on endorsers for false or misleading advertisements in case of first offences, whereas a penalty of up to INR 5 million may be imposed for subsequent offences. Further the CCPA may prohibit endorsers from making endorsement of any product or service for a period of 1 year for first offences, which may be extended to 3 years, in case of subsequent violations of the Act and / or the CCPA Guidelines. Therefore, it is extremely critical for social media influencers to comply with the requirements under the CCPA Guidelines before endorsing any product/ service.

Safe harbor for social media influencers under the Act

Although the Act imposes severe penalties on social media influencers, it also provides for instances where their liability may be excluded. To prevent any liability arising from false or misleading advertisements, social media influencers should be able to show that they have taken steps to verify the veracity of the claims made in the advertisement. Further, the social media influencer should be able to prove that the endorsement was made in the ordinary course of their business, and that they had no prior knowledge of any order passed by the CCPA for withdrawal or modification of the advertisement.

2.  ASCI Guidelines

The ASCI Guidelines also prescribe requirements to be followed by social media influencers while making endorsements where they have a material connection with the advertiser. A material connection for the purposes of the ASCI Guidelines includes any instances where the social media influencer receives any monetary or other form of consideration for the endorsement. Accordingly, most endorsements by social media influencers may be covered by the ASCI Guidelines and they should comply with the following requirements: (i) adding upfront and prominent disclosure labels to all promotional posts/ advertising content identifying such posts or content as advertisements; and (ii) conducting due diligence of the product/ services prior to making any endorsement to ensure that the advertiser can substantiate its claims. Although a consumer complaints committee has been constituted by ASCI, the same only acts as a body for ‘self-regulation’. Further, even if ASCI finds merit in a complaint, it can only recommend the social media influencer to remove or alter the advertisement but has no mechanism to compel removal of the advertisement, grant any interim relief, or award damages. However, it is recommended that a social media influencer should comply with the conditions prescribed under the ASCI Guidelines, in order to avoid any reputational harm arising out of any complaints received and processed by ASCI, as well as to comprehensively satisfy the due diligence requirements prescribed under the Act and the CCPA Guidelines.

Our thoughts

Social media influencers currently occupy an important position in the scheme of things pertaining to advertisements made through digital media. Further, with the introduction of the CCPA Guidelines, the likelihood of legal proceedings being initiated against the social media influencers is also substantially higher. Under such circumstances, it is key for these influencers to take adequate steps to be eligible to receive the safe harbor protections under the Act, as well as to ensure that they are adequately protected under their brand endorsement agreements, or other such agreements.

Social media influencers may ensure that their brand endorsement agreements must encapsulate the following:

(i) permit the social media influencer to tailor any promotional material or content provided by the advertiser to the extent as may be required for them to comply with the applicable laws;

(ii) require advertisers to provide representations and warranties with respect to accuracy of the advertiser’s claims, which must be backed by an indemnity for any losses suffered by the influencer;

(iii) right to unilaterally terminate the brand endorsement agreement, on moral grounds associated with the advertiser, or on grounds of other false or misleading content caused to be published by the advertiser; and

(iv) right to recover reasonable foreseeable losses suffered as a result of any false and misleading advertisement of the advertiser.

Similarly, the advertisers should also ensure that adequate safeguards are incorporated into the brand endorsement agreements to protect the advertisers in the event of any unilateral actions or actions of the social media influencer that are ultra vires the applicable laws. This will also go a long way in ensuring harmonious development of the advertising industry in India, with minimum interference from governmental and regulatory authorities.

Authors: Souvik Ganguly

Disclaimer: The information contained in this document is not legal advice or legal opinion. The contents recorded in the said document are for informational purposes only and should not be used for commercial purposes. Acuity Law LLP disclaims all liability to any person for any loss or damages caused by errors or omissions, whether arising from negligence, accident, or any other cause.