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Indian Law on advertisement of brand extensions of alcohol and tobacco products and how it poised to become tougher

India’s Ministry of Information & Broadcasting (MIB) recently put out an advisory for private satellite TV channels to ensure that liquor, tobacco and other intoxicants are not advertised directly or indirectly on their channels in violation of existing law, i.e. the Cable Television Network Rules, 1995 (CTNR). Under CTNR, satellite TV channels are prohibited from carrying out an advertisement that directly or indirectly promotes sale or consumption of liquor, wine, cigarettes and tobacco products.

However, advertisement of brand extensions of liquor and tobacco products is permitted under CTNR, provided the product sold under the brand extension does not make direct or indirect references to the prohibited product, it is distributed in reasonable quantity and is available in a substantial number of outlets, and the proposed expenditure on the advertisement of the brand extension product is not disproportionate to the actual sales turn-over of that product.

The enforcement of the provisions of CTNR has been indirectly delegated to a self-regulated industry body called Advertisement Standards Council of India (ASCI) by way of an amendment to CTNR that prohibits TV channels from running any advertisement that violates ASCI’s Code of Self-Regulation in Advertising (ASCI Code). The ASCI Code has a section titled “Guidelines for Qualification of Brand Extension Product or Service”, which as the name suggests, sets out the standards for what would pass as a brand extension and what would not.

As per the ASCI Code, for an advertisement to qualify as a genuine brand extension advertisement (i.e., by implication, not a surrogate advertisement), the in-store availability of the product sold under the brand extension must be at least 10% of the leading brand in the product category OR sales turn-over of the product must exceed INR 5 Crore (50 million) annually or INR 1 Crore (10 million) in the state where the product is distributed. This is a fairly high threshold by Indian standards and many leading brands, including those that put out Music CDs, have been unable to achieve them.

Consequently, some advertisers of liquor and tobacco products have turned to the internet as a media to advertise brand extensions. This is primarily because the CTNR does not apply to advertisements over the internet, there are no clear guidelines for content regulation over the internet, and until very recently, ASCI did not actively track advertisements over the internet.

This is set to change soon. Under the newly notified Consumer Protection Act, 2019 (CPA), the Central Consumer Protection Authority (CCPA) has the power to investigate manufacturers and services providers for misleading advertisement and impose a penalty up to INR 10 lakh (1 million) for the first violation and up to 50 lakh (5 million) for a subsequent violation. The scope of advertisement coved by CPA extends to advertisements over the internet, including in the electronic media, and therefore would cover misleading advertisements made over the internet or electronic media. The CCPA has recently published a draft of Central Consumer Protection Authority (Prevention of Misleading Advertisements and Necessary Due Diligence for Endorsement of Advertisements) Guidelines, 2020 (Draft Guidelines) to discuss what it would consider to be a misleading advertisement. Surrogate advertisements are deemed to be misleading advertisement under the Draft Guidelines, and therefore will be prohibited once the Draft Guidelines are finalized.

The Draft Guidelines do make an exception for brand extension. An advertisement of brand extension will be permitted only if “the advertisement is produced and distributed in reasonable quantities, having regard to the scale of the advertising in question, the media used, and the markets targeted”. In absence of any specification on what would constitute “reasonable quantity”, it is quite likely that CCPA may refer to the ASCI Code to determine what is “reasonable” for the industry, after all, ASCI is a self-regulatory body of the industry. In the event that happens, the high current thresholds for ‘genuineness’ of brand extension advertisement under ASCI Code will be extended for determination of “misleading advertisement” under Consumer Protection Act, 2019, and that may make advertisement of brand extensions more difficult in India than it already is.

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Legality of making COVID-19 defence or immunity claims in India

India’s central drug regulator, the Drugs Controller General of India, has reportedly served a notice on a major FMCG company in India to explain why action should not be taken against it for making a misleading claim that its hand sanitizer is a “immunity booster” and that it “kills inactive coronavirus”. This points to an increasing trend amongst FMCG Companies who are making COVID-19 or corona virus related claims to capture the hygiene market. The basis for these claims are various World Health Organization (WHO) and scientific reports that have found that ethyl alcohol or isopropyl alcohol is effective in killing the viruses of corona virus family (including SARS-CoV-2) when used over a certain concentration. However, these tests are done in strict laboratory condition and the viruses are exposed to the active ingredients over a period of time to yield result, which does not typically happen in everyday usage of the product. More importantly, it may not be proper to “logically” extend the findings of external scientific reports to any formulation that carries the same active ingredient as the laboratory drug, for the simple reason that in the event of an inquiry, it will be almost impossible for a company to actually test its product for “immunity” or “killing” properties against corona viruses as these viruses are not available in private labs for testing and are generally considered as health and environmental hazards. Therefore, a very clear assessment of risks versus benefit must be done before making a COVID-19 or corona virus related claim for a formulation. In fact, India’s regulator for alternative systems of medicine (Ministry of AYUSH) has expressly prohibited advertisement for COVID-19 treatment by alternative system of medicines (such as Ayurveda and Homeopathy). And, as such, even for making claims such as “kills upto 99.99% germs”, a company must first check whether its formulation is able to satisfy the claim by testing its formulation in a recognized laboratory as per prescribed international standards

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New Consumer Protection law in India: A Simple Overview (Seller Beware!)

Consumer Protection Act 2019

On July 20th, 2020, the new Consumer Protection Act, 2019 came into force in India, replacing the previous enactment of 1986. The new Act overhauls the administration and settlement of consumer disputes in India. It provides for strict penalties, including jail terms for adulteration and for misleading advertisements. More importantly, it now prescribes rules for the sale of goods through e-commerce. The consumer is now truly the king!

Here are some of the highlights:

  • An aggrieved consumer can file complaints about a defect in goods or deficiency in services from where she lives, instead of the place of business or residence of the seller or service provider. The new law provides for e-filing of consumer complaint as well.
  • No fees are required to be paid if the claim is within Rupees 5 lakhs (approximately 3500 USD).
  • A consumer can conduct her own case via video conferencing. Engaging a lawyer is optional.
  • A concept of product liability has been introduced by the new law, thereby allowing aggrieved consumers to claim significant compensation as a relief due to the negligence of the manufacturer or service provider.
  • A group of aggrieved consumers can join hands and file a class action suit (like in the US) to reduce costs and improve chances of redressal or settlement.
  • Producers of spurious goods may be punished with imprisonment.
  • Misleading advertisements may be punished with imprisonment. Celebrities endorsing a product may not be punished but can be barred from endorsing if the advertisement is misleading.
  • E-commerce is now tightly regulated, and e-commerce companies are now expected to disclose all relevant product information, including country of origin, and respond to the grievance of consumers withing prescribed timelines.
  • Settlement of consumer disputes through mediation i.e. with the help of a neutral intermediary outside the consumer court is encouraged under the new law, thus saving time and resources of disputing parties which would otherwise have been spent on dispute resolution through a formal mechanism.
  • Consumers now have several protected rights, including the right to safety, information, choice, redressal as well as right to be heard, to be educated as a consumer, and to a mediated settlement.

Corporates entities that cater to consumers will have to exercise greater care and caution in terms of quality, quantity, and product safety. The boards of corporates that manufacture or trade consumer goods must create a Consumer Affairs Committee to periodically review consumer complaints and address the need to proactively offer mediated settlements by holding online mediation and save themselves the expenses of defending a matter in Consumer Courts, in some remote part of India besides incurring the collateral damage to reputation.

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Highlights – Consumer Protection Act, 2019

The Consumer Protection Act, 2019 (“New Act”)  heralds the beginning of a new era of consumer rights in India that are in sync with new-age consumer expectations. It carries forward the rich legacy of The Consumer Protection Act, 1986 (“Act”) that was considered path-breaking at the time of its enactment, but which was unable to meet the challenges of a rapidly growing, sophisticated and inter-dependent market for goods and services.

Key Highlights of the New Act-

Establishment of Central Consumer Protection Authority: The New Act will establish a new regulatory authority known as the Central Consumer Protection Authority (“Central Authority”), which will have wide powers of investigation including the power of search and seizure. The CCPA will have an investigation wing, headed by a Director-General, which may conduct inquiry or investigation into violation of consumer rights or unfair trade practices (much like the MRTP Commission under erstwhile Monopolies and Restrictive Trade Practices Act, 1969 that had powers to investigate monopolistic or restrictive trade practice).

The Central Authority has been granted wide powers to take suo-moto actions, recall products, order reimbursement of the price of goods/services and file class-action suits if a consumer complaint affects more than 1 (one) individual.

Product Liability: The New Act has formally introduced the concept of product liability and brought within its fold not just the product manufacturer and product service provider but the product seller as well. A ‘product seller’ is such a person who is involved in placing the product in the market for a commercial purpose (e.g. brand owner). A product liability action for compensation can now be formally made on grounds of defectiveness of good or deficiency of services that has caused harm to a person or his/her property on grounds. The scope of defect and deficiency has been expanded to include non-conformance to express warranty or specifications, design defect, failure to provide adequate instructions or warnings to prevent any harm etc. Certain exceptions have been provided under the New Act from product liability actions, such as, that the product seller will not be liable where the product has been misused, altered or modified.

Unfair Contracts: Following international jurisprudence, the New Act introduces a unique provision that safeguards consumers against unfair contracts by declaring them to be illegal. An unfair contract covers contracts between manufacturer/ trader and a consumer that causes significant changes in the rights of the consumer that the New Act explicitly recognizes, such as by way of – imposing unreasonable obligation or condition on the consumer which puts consumer to disadvantage; reserving right to unilateral termination (without reasonable cause) or assignment without consent (which is to the detriment of the consumer) in the contract; imposing a penalty for breach which is disproportionate to loss caused etc. 

Unfair Trade Practices: The New Act introduces a broader definition of Unfair Trade Practices, which also includes sharing of personal information given by the consumer in confidence, unless such disclosure is made in accordance with the provisions of any other law. The New Act empowers the Central Authority and Consumer Commission (i.e. the judicial fora) to order the perpetrator of such practice to discontinue it.

Penalties for Misleading Advertisement: The New Act introduces, for the first time, a definition of misleading advertisement. It covers false description and guarantee of a product or services. It also covers information that was deliberately concealed from the consumer. If a misleading advertisement is found to be prejudicial to the interest of consumers, then the Central Authority may impose a penalty of up to INR 1,000,000 (Indian Rupees One Million) on a manufacturer. Separately, the New Act has made it a criminal offence to publish false or misleading advertisement for manufacturers and services providers. If found guilty, they could be sentenced to imprisonment for up to 2 (two) years.

Celebrity Endorsement: The New Act fixes liability on endorsers considering that there have been numerous instances in the recent past where consumers have fallen prey to unfair trade practices under the influence of celebrities acting as brand ambassadors. In such cases, it becomes important for the endorser to take the onus and exercise due diligence to verify the veracity of the claims made in the advertisement to refute liability claims. If a misleading advertisement is found to be prejudicial to the interest of consumers, then the Central Authority may impose a penalty of up to INR 1,000,000 (Indian Rupees One Million) on the endorser as well. The Central Authority can also prohibit the endorser of a misleading advertisement from endorsing that particular product or service for a period of up to 1 (one) year. For every subsequent offence, the period of prohibition may extend to 3 (three) years.  

E-Commerce Transactions Covered: The New Act has widened the definition of ‘consumer’. The definition now includes any person who buys any goods, whether through offline or online transactions, electronic means, teleshopping, direct selling or multi-level marketing. The earlier Act did not specifically include e-commerce transactions.

Enhancement of Pecuniary Jurisdiction: Like the previous Act, there are three fora for consumer grievance redressal: The District Commission, State Commissioner and National Commission. Each for a has been given a pecuniary limit to entertain consumer complaints. These limits are far higher than the limits set by the previous Act. The District Commission (earlier referred to as District Forum) can now entertain consumer complaints where the value of goods or services paid does not exceed INR 10,000,000 (Indian Rupees Ten Million). The State Commission can entertain disputes where such value exceeds INR 10,000,000 (Indian Rupees Ten Million) but does not exceed INR 100,000,000 (Indian Rupees One Hundred Million), and the National Commission can exercise jurisdiction where such value exceeds INR 100,000,000 (INR One Hundred Million). 

E-Filing of Complaints: The New Act provides flexibility to the consumer to file complaints with the jurisdictional consumer forum located at the place of residence or work of the consumer. This is not an option under the previous Act, which mandated filing of the complaint at the place of work or business of the opposite party. The New Act also contains enabling provisions for consumers to file complaints electronically and for hearing and/or examining parties through video-conferencing. This should reduce inconvenience for the consumers, especially the ones who are physically challenged due to ill-health or old age.

Provision for Alternate Dispute Resolution: The New Act provides for mediation as an alternate dispute resolution mechanism, making the process of dispute adjudication simpler and quicker. This will help speedier resolution of disputes and reduce pressure on consumer courts.

Date of enforcement: The New Act has been notified on August 9 2019. It will replace the Consumer Protection Act, 1986 when enforced. The date of the enforcement of New Act 2019 has yet not been announced, but is expected soon.

With the New Act becoming law of the land, gone are the days of  ‘Buyers beware’. The consumer is now the king, not just in business but also in law. Hence, it is important for FMCG, E-retailers and Celebrity Endorsers to be cognizant of the provisions of the New Act. All businesses must pull up their socks and amend their business practices and contracts to meet the expectations of the New Act, so that they do not find themselves caught on the wrong side of the law when then New Act is enforced.