In 2019, the New York Times published a piece titled “Don’t Scoff at Influencers. They’re Taking Over the World”. The article expressed some prescient views: “As social media expands its cultural dominance, the people who can steer the online conversation will have an upper hand in whatever niche they occupy — whether that’s media, politics, business or some other field.”
Closer home, as per a May 2023 report by Dentsu and others, 70% of surveyed Indians believed that influencer marketing had persuaded them to know about a new brand or purchase a product. According to a GroupM India study, the Indian influencer marketing industry was valued at 1,275 crores in 2022 and is poised to grow exponentially in the coming years. These estimates bear testament to the soaring appeal of influencers in the eyes of businesses and consumers alike.
Recognizing this burgeoning appeal, the Department of Consumer Affairs published the Endorsements Know-Hows (“EKHs”) on January 20, 2023.i According to the EKHs, “influencers” are “creators who advertise products and services with a strong influence on the purchasing decisions or opinions of their audience.” ii The EKHs, coupled with the Consumer Protection Act, 2019 (“Act”) and the Guidelines for Prevention of Misleading Advertisements and Endorsements for Misleading Advertisements, 2022 (“Guidelines”), regulate advertising by social media influencers in India.
Before jumping on the influencer bandwagon, it is vital for businesses to examine all the influencer-related laws carefully to ensure that their advertisements do not attract any regulatory backlash. We have highlighted 5 crucial legal considerations below that companies must keep in mind before engaging influencers for brand promotions:iii
- Duty to disclose material connections: In a bid to protect consumers against misleading advertisements and unfair trade practices, the EKHs require social media influencers to post specific disclosures on social media platforms. This obligation to disclose is triggered when there is a “material connection” between the company and the influencer that “may affect the weight or credibility of the representation” made by the influencer.iv Such material connection is not merely restricted to monetary consideration but also includes any free products, trips, awards and any other benefits or incentives provided to the influencer by a company.
Under the EKHs, some of the key requirements pertaining to the format and language of disclosures are as follows:
- Disclosures should be “clear, prominent and extremely hard to miss”. Consequently, disclosures buried in a group of hashtags or links would not constitute valid disclosures.
- For a picture endorsement, disclosures should be “superimposed over the image enough for viewers to notice”.
- In a video endorsement, disclosures are required to be made in “both audio and video format”.
- For a live stream, disclosures must be displayed “continuously and prominently during the entire stream”.
- The language used in disclosures has to be “simple and clear” and the disclosures and endorsements are required to be “in the same language”. The EKHs expressly allow the usage of words such as “advertisement”, “ad”, “sponsored”, “paid promotion” and “paid” for disclosures by influencers on social media platforms.
Companies must ensure that these recently introduced disclosure obligations are brought to the attention of the social media influencers that they collaborate with, by incorporating them in their influencer engagement contracts. It is also commonplace for companies to draft their own disclosure templates for social media content and mandate their influencers to adhere to them under influencer engagement contracts. In such scenarios, companies must ensure that these templates conform, at a minimum, with the requirements of the EKHs. Moreover, companies must also expressly reserve the right in such contracts to require their influencers to add or modify disclosures, to ensure that companies are not held liable for any missing or wrongful disclosures by their influencers.
- Due diligence obligations: The Guidelines require every endorsement in an advertisement to reflect the “genuine” and “reasonably current” opinion of the influencer, which must be based on “adequate information about” or “experience with” the endorsed product or service. Expanding upon this requirement, the EKHs advise influencers to “review and satisfy themselves that the advertiser is in a position to substantiate the claims made in the advertisement.”
Out of abundant caution, companies should require influencers to represent and warrant the compliance of the abovementioned due diligence obligations in influencer engagement contracts. Moreover, such contracts should also impose obligations on influencers to execute the necessary undertakings to signify such compliance, so that companies are well-equipped to deal with any regulatory queries or actions for due diligence violations.v
- Consequences of non-compliance with disclosure and due diligence obligations: Section 21 of the Act empowers the Central Consumer Protection Authority (“CCPA”) to issue directions and impose penalties for false and misleading advertisements. Such directions could include mandating the company or the influencer to discontinue or modify the advertisement within a specified period of time. The CCPA may also prohibit the offending influencer from making any endorsement for a period of up to 1 year for the first contravention and up to 3 years for every subsequent contravention. Additionally, monetary penalties ranging from a maximum of INR 10 lakhs for the first contravention to a maximum of INR 50 lakhs for every subsequent contravention may also be imposed on the erring company or the influencer.vi
- Tax Deducted at Source (“TDS”)on freebies: In a barter system, social media influencers typically receive free samples or gifts from companies in exchange for the content that they generate and post for such companies. Companies will now become liable to deduct tax at 10% on the value of any benefits or perquisites (including freebies) provided to influencers who are Indian residents.vii This liability was introduced under section 194R of the Income-tax Act, 1961 and has become effective starting July 1, 2022. TDS kicks in only if the value of such benefits or perquisites received by the influencer from the company exceeds INR 20,000 in a financial year. However, this TDS liability is not applicable to companies falling below the financial thresholds prescribed under section 194R.
While this TDS provision was intended to widen the tax base and introduce transparency in reporting benefits from promotional activities, it has caused numerous companies and influencers to rethink the financial feasibility of barter deals. Going forward, companies and influencers will have to maintain appropriate documentation and undertake reporting of freebies, in order to withstand scrutiny from taxation authorities.
- Responsibility to not publish harmful or disparaging content: The Bombay High Court, in a 2020 case, recognized social media influencing to be “one of the most impactful and effective ways of marketing and advertising”. Noting the unprecedented sway exerted by social media influencers in the minds of the public, the court opined as follows: “Social Media Influencers, whether their audience is significant or small, impact the lives of everybody who watches their content. They do have a responsibility to ensure what they are publishing is not harmful or offensive.” The court also emphasized that a social media influencer bears “a higher responsibility” than an ordinary citizen to ensure that his statements do not mislead the public.
Moreover, in two recent cases, the Calcutta High Court and the Bombay High Court have ordered influencers to remove disparaging and defamatory content posted on social media against prominent companies operating in the consumer goods and biotechnology sectors respectively. In the light of these judicial developments, companies must ensure that the influencers engaged by them do not disparage their competitor’s products or publish any unlawful or harmful content in the course of undertaking promotional activities. This is generally achieved by ensuring that the final creative control over social media content posted by the influencer rests in the hands of the company, under the influencer engagement contract.
In the near future, businesses can expect more nuanced regulations governing different categories of influencers in India, such as finfluencers and virtual influencers. Finfluencers (i.e. influencers dispensing financial advice) are being closely watched by regulatory authorities in India, given their growing clout and potential to cause huge financial losses to an impressionable public.viii Virtual influencers (i.e. computerized human-like characters) have posed huge ethical and legal quandaries for regulators and brands across the globe, due to their propensity for deception and lack of accountability.ix The interests of businesses would be best served by tracking this ever-evolving legal landscape and ensuring the execution of robust influencer engagement contracts, bearing all the applicable legalities in mind.
i. Prior to the EKHs, the Advertising Standards Council of India (“ASCI”), a voluntary advertising monitoring organisation, had issued the Guidelines for Influencer Advertising in Digital Media in 2021. Many of these ASCI Guidelines have now been incorporated in the legally binding EKHs. ASCI routinely processes complaints against influencers for misleading advertisements and escalates them to the concerned government authorities in appropriate cases.
ii. It is pertinent to note that in order to qualify as an influencer under the EKHs, there is no requirement for an individual to have a minimum number of followers or a verified tag on social media.
iii. These points are merely illustrative and do not constitute an exhaustive list.
iv. A similar provision is contained in guideline 14 of the Guidelines.
v. Last year, ASCI launched an Endorser Due Diligence service for providing paid advice on advertising material to influencers, to ensure that they do not feature in misleading advertisements and fall afoul of the law.
vi. Section 21 clarifies that an influencer will not be liable to penalties if he/she has exercised due diligence to verify the veracity of the claims made in the advertisement.
vii. These benefits or perquisites may be in cash or kind or both.
viii. Last year, ASCI had framed guidelines for advertising of virtual digital assets and services targeted primarily at finfluencers who promote such assets and services. Recent news reports suggest that the Securities and Exchange Board of India is expected to come up with comprehensive regulations for finfluencers shortly.
ix. The EKHs define “virtual influencers” as “fictional computer generated ‘people’ or avatars who have realistic characteristics, features and personalities of humans, and behave in a similar manner as influencers”. The ASCI Guidelines for Influencer Advertising in Digital Media require virtual influencers to disclose to consumers that “they are not interacting with a real human being” in an “upfront and prominent” manner. However, detailed legislation surrounding virtual influencers in India is still awaited.
Disclaimer: This article is intended to provide general information and should not be substituted for context-specific professional legal advice. Neither the author nor Anoma Legal shall be responsible for any loss whatsoever sustained by any person relying on this article.