The advertising industry worldwide has recognized the value of celebrity endorsements to boost product sales, which is even more apparent with the advent of internet influencers on TikTok, Instagram, Twitter, Facebook, and YouTube. Influencers, also known as brand ambassadors or endorsers, are admired and trusted, making them beneficial to marketing campaigns aiming to convince consumers to try a product or service.
But what if the claims that an advertiser makes are misleading or untrue? Multiple countries have enacted laws to hold advertisers liable; and more recently, the celebrities who endorse products that do not live up to the hype are also facing the liability question.
Under the Federal Trade Commission’s (FTC) Bureau of Consumer Protection in the United States, and the Consumer Protection Act (CPA) of 2019 in India, endorsers are facing increased scrutiny for what they say and do. Endorsers were not mentioned in India’s original Consumer Protection Act of 1986. In a rare move, the FTC in 2020 amended a complaint against an advertiser to include two celebrity endorsers.
Before amending the case, the FTC sued Nudge, LLC and its affiliates, alleging most consumers who purchased their real estate investment training programs did not end up becoming successful real estate investors and rarely even made enough to cover what they paid for the training. The complaint was amended to include Dean Graziosi, who described himself as an entrepreneur and a New York Times best-selling author, and Scott Yancey, the star of the reality TV series “Flipping Vegas.” The FTC claimed Nudge used the celebrities to entice consumers into training programs that falsely promised a proven formula for successful real estate investing.
Director Andrew Smith, from the FTC’s Bureau of Consumer Protection, said the endorsers were enjoined because they were full participants in the scheme and systematically profited from it.
A consumer court in Kerala, India, held Anoop Menon, a brand ambassador for Dhathri Hair Cream, liable for false claims about the product because he did not investigate whether the product claims were accurate. Both were fined.
Both the U.S. and India have hammered out new guidelines and laws, but some details remain hazy. How is an endorser defined and how famous does one have to be? What if an endorser cannot reasonably perform due diligence on a product? How does money affect liability?
These are questions both countries have contemplated. India’s CPA does not give a precise definition of an endorser, but legal scholars accept that it is usually a celebrity, or someone recognized by the public who is hired to enhance a brand. The FTC, in its “Guides Concerning the Use of Endorsements and Testimonials in Advertising,” concluded that endorsers must provide honest opinions based on their findings, experiences, or beliefs. The endorsement is not acceptable if it could be construed as deceptive or if the advertiser made it. Endorsers must be using the product at the time of the endorsement.
India’s CPA explains which acts are prohibited and what the penalties are for a violation. The FTC can bring lawsuits against advertisers and endorsers, and ask for specific relief depending on how profitable the deceptive enterprise has been. The Nudge endorsers profited by more than $10 million each. The lawsuit asked for up to $2,500 for each fraudulent consumer transaction, as well as fines and attorneys’ fees.
The CPT offers a defense to endorsers and will not hold them liable if they have performed due diligence to make sure the advertising claims are truthful. The FTC takes it one step further and allows brand endorsers to hire outside help to verify the truthfulness of claims.
In both the U.S. and India, celebrities and influencers who are tapped to participate in certain ad campaigns would be wise to perform due diligence before saying yes. Expanded interest in consumer protection puts celebrities in another kind of spotlight if they recklessly or knowingly promote a product that cannot live up to the claims, thus harming consumers. If you wish to protect yourself from liability claims, consult with our team of lawyer at Lomnitzer Law.