Preeti Balwani evaluates the country’s labyrinthine advertising laws and their impact on the industry

Advertisements are at the heart of commercial speech, which the Supreme Court has held is a part of freedom of speech and expression, a fundamental right under article 19 (1) (a) of the Constitution of India.

Regulating advertisements is a hot potato, though. While there are several legislative provisions, there is no uniform code or law that deals with all aspects of advertising. The industry has so far resisted attempts to create a uniform advertisement code or a single regulator.

India, like several other jurisdictions, prefers self-regulation for advertisements. The Advertising Standards Council of India (ASCI) publishes and updates fair advertising guidelines referred to as ASCI codes, which need to be adhered to by member organizations to protect the interests of the consumer.

While the ASCI remains a self-regulatory body, the Reserve Bank of India (RBI), the Securities and Exchange Commission of India (SEBI) and the Insurance Regulatory and Development Authority of India (IRDAI) also regulate advertisements in their respective sectors. State-owned broadcasters Doordarshan and All India Radio (AIR) adhere to the Doordarshan and AIR Advertisement Code which is under the control of Prasar Bharati (government owned public broadcasting agency) formulated under the Prasar Bharati Act. The Department of Consumer Affairs also maintains an online portal where consumers can post their grievances against misleading advertisements.

SETTING LIMITS

The courts have over the years weighed in on what is acceptable for advertisements. In the landmark case of Tata Press Ltd v Mahanagar Telephone Nigam Ltd (1995) (MTNL), the Supreme Court considered if Tata Press was permitted to publish telephone directories and sell advertisements in its Yellow Pages. The court, while equating advertisements or commercial speech to the fundamental right of freedom of speech as enshrined in the constitution, held that the protection has been accorded to corporate entities as well. In another landmark case, Bennett Coleman & Co & Ors v Union of India (1972), which challenged the restrictions on the import of newsprint under Import Control Order, 1955, the Supreme Court held that the fundamental rights of shareholders as citizens are not lost when they associate to form a company.

Courts have maintained that a little hyperbole is acceptable for advertisements. They are not testamentary provisions in a will or a clause in some agreement with every word being carefully considered and the words as a whole being compared, according to Delhi High Court in Havells India v Amritanshu Khaitan (2015), where the court considered whether or not an advertisement that compares one product with a similar rival product must necessarily compare all its features in order for it to be an “honest” advertisement.

In the case of comparative advertising, courts have said that a certain amount of disparagement is implicit in advertisements, as held in a series of judgments including De Beers Abrasive v International General Electric (1975), Dabur v Colortek (2010), GSK v Heinz India (2010), Colgate Palmolive v Hindustan Unilever (2014).

Justice Rajiv Sahai Endlaw, in Marico Limited v Adani Wilmar Ltd (2013), in dismissing the petition filed by Marico, the makers of Saffola brand of cooking oil, against Adani Wilmar, which owns the Fortune brand of oil, over an alleged disparagement of the former’s products went on to state that “any trader is entitled to puff his own goods even though such puff as a matter of pure logic involves the denigration of his rival’s goods … statements such as my goods are better than X’s is only a more dramatic presentation of what is implicit in the statement that my goods are the best in the world and would not be actionable”.

However, the litmus test to determine if the advertisement that compares rival products are actually disparaging is whether a “reasonable or prudent man” would take the statement seriously – attributing a defect in the rival trader’s goods. Even at the interlocutory stage in such cases of comparative advertisements, if the defendant sets up an arguable case, the courts do not generally injunct statements of defendants on an allegation of disparagement, as held in Hindustan Unilever v Cavincare (2010).

Courts also provide for some creative latitude in advertising. An advertiser must be given enough room to play around in (the grey areas) in its advertisement, the courts held in Dabur India v Colortek Meghalaya (2010). The promotion of a robust market for trade and commerce requires that the courts grant some latitude to advertisers in designing and crafting their pitch to consumers and the tendency to scrutinize these advertisements with a magnifying glass must be eschewed unless of course the claims are found to be totally unsubstantiated and to have no basis in reason or logic, as was held in Marico v Adani Wilmar.

NEW LAWS

While the broad contours of advertising laws are in place and there is proactive self-regulation, the government has made a concerted push to control and prevent false and misleading advertisements. In 2018, there were three new laws that dealt with advertising – the Consumer Protection Bill, 2018; Food Safety and Standards (Advertising and Claims) Regulations, 2018; and the Amendment to Drug & Cosmetics Rules for advertisements related to Ayurveda, Unani and Siddha drugs (Indian traditional medicines). Though these legislations were aimed at specific industry sectors and to preserve the interests of the consumers, they have aspects that have a massive impact on the advertising industry.

Consumer protection bill: This seeks to replace the existing Consumer Protection Act, 1986, and proposes a significant overhaul of the redressal mechanism provided under the existing legislation. The new bill not only covers all goods and services but also all modes of transactions, such as online shopping and teleshopping.

The new bill adds three types of unfair trade practices i.e. failure to issue a bill or receipt, refusal to accept the return of goods within 30 days of purchase, and disclosure of confidential personal information. The new bill will also introduce provisions for product liability and claims that can be made against the manufacturer, service provider and the seller for product defects or deficiency of service. A claim for compensation may also be made for any harm caused, including damage to property, personal injury, illness, or death, and mental agony or emotional harm accompanying these conditions. It also seeks to establish a Central Consumer Protection Authority (CCPA) to promote, protect, and enforce the rights of consumers as a class.

The CCPA will also have the authority to impose penalties for false and misleading advertisements. The CCPA may impose a penalty up to `100,000 (US$ 1,445) for false and misleading advertisements on a manufacturer or even an endorser. For a subsequent offence, the fine may extend up to `500,000. The manufacturer can also be punished with imprisonment of up to two years, which may extend to five years in case of every subsequent offence.

While the new bill is a step in the right direction, there appears to be an attempt by the government to regulate false and misleading advertisements. This would be a dramatic shift from the self-regulation philosophy followed until now. This bill faces strong resistance from various industry and trade bodies. ASCI codes have already laid down detailed guidelines of what is fair in advertising whereas this bill only defines what is considered misleading in advertisements. How would the CCPA and the ASCI would co-exist, remains to be tested.

Further, the new bill imposes high penalties for false and misleading advertisements, not just on the manufacturers but also on celebrity endorsers. An exclusion has, however, been granted to brand endorsers who have exercised due diligence, but it does not define “due diligence” or what would be the standard of diligence. This will result in brand owners trying to limit liability or exposure through their endorsement contracts. While the intention is noble, careful drafting would have gone a long way to clarify the legislation’s intent and objectives. Needless to say, it will be a tough road ahead for companies to get celebrity endorsers for their brands.

Food safety regulations: The advertising claims regulations, though notified in 2018, will become effective from 1 July 2019. Food business operators will need to ensure compliance by the deadline or face consequences. These regulations have widened the definition of an advertisement to include those on online or digital platforms and have included definitions for digital interactive media as well.

The regulations set out certain conditions or general principles to be followed while making advertising claims for food products. Some of these conditions include those that an advertisement should not encourage or condone excess consumption of a particular food, that it should specify the number of servings of the food to get the benefit claimed, that if a product’s trademark itself contains an advertising claim then that product name will also need to be able to satisfy the conditions of these regulations, etc.

Certain claims such as home-made or home-cooked are not permitted while other claims such as pure, fresh, natural would need to comply with additional conditions provided in the regulations.

The regulations also prohibit 1) claims that refer to the suitability of the food for use in the prevention, alleviation, treatment or cure of a disease, disorder of particular physiological condition; 2) labels that indicate that the food is recommended by a medical professional; 3) foods which claim “added nutrients” if such nutrients have been added merely to compensate for the nutrients lost or removed during processing of the food; 4) foods for special purposes cannot make the claim of its special purpose unless permitted by another law to make that claim and 5) claims that undermine the products of any other manufacturer for the purpose of promoting their products or influencing consumer behaviour. A food business operator may also seek approval from the regulator, Food Safety and Standards Authority of India, for nutritional and health claims that are not explicitly covered in these regulations.

This is another attempt by a regulator to determine what advertisements are permitted. This regulation goes so far as to list a set of claims that are “prohibited” in advertisements for food products. What is worrying here is that this regulation prohibits claims “that undermine the products of any other manufacturer for the purpose of promoting their products or influencing consumer behavior”. As we have seen earlier, it is well settled in Indian jurisprudence that comparisons and comparative advertisements are permitted in India. This blanket ban on comparative advertisements will also throw up challenges such as deviation from existing principles of law that permit comparative advertisements. This regulation enforces a stricter regime on claims for food products as opposed to other products that can continue to create comparative advertisements.

It would be interesting to see how the CCPA, when established, and the Food Safety and Standards Authority of India, the sector regulator, would iron out issues regarding authority and jurisdiction with respect to consumer complaints, as both regulators will have the authority to receive consumer grievances for food products. The question is if the regulators would prefer to pass the buck or fight to retain control in such cases.

Drug and cosmetics rules: The Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homeopathy (AYUSH), on 21 December 2018, notified the Drugs and Cosmetics (Eleventh Amendment) Rules, 2018 (amendment), which seeks to regulate advertisements of Ayurvedic, Siddha and Unani drugs (ASU drugs).

The amendment adds rule 170(1) to the Drugs & Cosmetics Rules, prohibiting a manufacturer or his agent from publishing any advertisement relating to the use of ASU drugs for the diagnosis, cure, mitigation, treatment or prevention of any disease, disorder, syndrome or condition.

The amendment lays down a requirement for a unique identification number (UIN) for advertising any ASU drug for purposes other than those prohibited under rule 170(1). Any drug manufacturer will need to have their advertisements presented before the state licensing authority for review before publishing such advertisements. Only pre-approved advertisements will be allotted a UIN.

Further, the amendment appears to have some retrospective ability and requires every ASU drug manufacturer to apply for the said UIN for all advertisements that have been aired within a period of three months from the amendment. Each application for approval of the advertisement must be made to the state licensing authority, which may reject an application on grounds such as use of vulgarity or obscenity, misleading or exaggerated claims regarding the effectiveness of the ASU drug, or that it depicts photographs or testimonials of celebrities or government officials, it makes a reference to a government organization or an autonomous organization of the government, it gives a false impression of the true nature of the ASU drug or suggests or leads to the use of the ASU drug to enhance sexual performance.

Non-compliance with the new norms could result in the state licensing authority suspending or cancelling the manufacturing license of these ASU drug manufacturers.

While the Ministry of AYUSH has sought to amend the Drugs & Cosmetic Rules through the authority granted to it under the Drugs and Cosmetics Act, whereby the central government has the power to frame rules, the question is how the ministry has interpreted this power as the ability to frame rules on a topic not originally covered by the main legislation. It is the Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954, that deals with advertisements of drugs including ASU drugs and the amendment and update of the Drugs and Magic Remedies Act would have perhaps been more appropriate.

A writ has been filed in Delhi High Court by Reckitt Benckiser, the Association of Ayurvedic Medicines and others challenging this notification as it seeks to create a blanket prohibition on advertisements ASU drugs. Further, the notification creates a distinction in advertisements of drugs used in modern medicine and ASU drugs. While the former is permissible under certain conditions, the notification prohibits all advertisements of the latter.

Delhi High Court has directed the government not to take any coercive action against the petitioners until the hearing. It remains to be seen if courts would find the law prohibitive of our right to free speech as guaranteed under article 19(10)(a) and the right to trade under article 19(1)(g) of the constitution, and whether the petitioners would seek to challenge the powers of the government to make such a rule, which is outside the scope and ambit of the parent legislation.

END GAME

These three laws will have a far-reaching impact on how we choose to brand and advertise our products in India. As we have already seen with the writ filed against the changes to advertisement guidelines for ASU drugs, we may see further legal challenges in the interpretation of the advertising claims regulations. In a perfect world, it would be the consumer who would decide what is fair in advertisements. There are several precedents which support the theory that the consumer is prudent enough to disregard the hyperbole or exaggeration in advertisements but our regulators believe it falls upon them to be the guardians of what is in the best interest of the consumer.

The conditions imposed on advertisements in these new legislations are subjective, ad-hoc and do not address fairness in advertising holistically. They could prove to be the Infinity Stones needed to complete the Infinity Gauntlet and if we do not see some major time travel or legislative reform soon, we may end up with a world made less interesting by great advertisements that never made it past the regulators’ scrutiny.

OTHER LAWS THAT GOVERN ADVERTISING:
Other laws that govern advertising:[The list has been arranged chronologically]

 

Preeti Balwani is the general counsel for Kraft Heinz in India and an executive director on its board of directors. The views expressed in this article are personal and do not reflect the views of the Kraft Heinz Company or any of its affiliates.