Negotiating athlete endorsement agreements in India

Published 18 January 2017 By: Roshan Gopalakrishna, R. Seshank Shekar

ENGAGING A MARKETING AND REPRESENTATION AGENCY 

To maximise the potential for endorsement opportunities and off-field earnings in India, an athlete may consider engaging a reputable agency to market and represent the athlete in India. The agency can assist the athlete in:

1. Marketing the athlete to potential brands and companies;
   
   
2. Conducting due diligence and background checks on the companies and brands seeking to engage the athlete;
   
   
3. Representing the athlete in any negotiations and discussions relating to commercial opportunities; 
   
   
4. Engaging legal counsel to vet agreements and documentation that the athlete may enter into; and
   
   
5. Acting as a conduit between the athlete and the company with respect to the performance of each party’s obligations under the endorsement agreement, which may include the collecting of any fees due under the endorsement agreement and facilitating the delivery of the athlete’s services and commitments. 

Engaging a local agency could be beneficial for the athlete as the agency would have knowledge and expertise of the market and local conditions and can be made responsible for securing and managing commercial opportunities for the athlete, while the athlete focuses on professional and on-field commitments. It goes without saying that any drop in the athlete’s on-field performance levels will impact off-field commercial opportunities. The agreement with the agency should be unambiguous with respect to the territory in which the agency is authorised to represent the athlete, the term of the engagement and the nature of the activities that the agency is authorised to undertake on behalf of the athlete. The commission to be paid to the agency with respect to each confirmed endorsement opportunity that the athlete enters into and the manner in which such commission will be paid should also be agreed and specified in the agreement. 

While the agency may be made primarily responsible for managing the athlete’s commercial opportunities, the athlete should maintain close supervision over the agency’s activities to ensure that the agency does not act beyond the scope of what it is permitted to do under the agreement or bind the athlete to any commitments without obtaining appropriate authorisation.

PRESERVE FUTURE FREEDOM TO CONTRACT 

The agency that the athlete engages may request the athlete to include provisions in the agreement that are intended to encourage the athlete and the agency to continue and expand their relationship beyond the original scope, term or territory specified in their agreement. Such provisions include negative covenants that are often referred to as the “Right to make First Offer”, “Right of First Refusal” and “Right to Match” clauses. A company or brand may also request similar provisions in the endorsement agreement with the athlete.

Such clauses may restrict or limit the athlete from entering into agreements with other entities for other territories, services, products or terms without first providing the original agency or the company (as the case may be) with the right to offer their own terms or review and refuse to match the terms offered by the third party. The athlete should carefully consider all options before agreeing to the inclusion of such negative covenants in the agreement with the agency or the company as they in effect curtail the commercial freedom of the athlete and restrict commercial options in future.

Such covenants are permitted under Indian contract law during the term of an agreement unless the agreement is unconscionable, excessively harsh, unreasonable or one-sided. How many such negative covenants that are included in personal services contracts, have been deemed to be in restraint of trade and void and unenforceable by Indian courts in multiple cases. 

In the context of endorsements and promotional activities in particular, reference may be made to the case of Percept D'Mark (India) Pvt. Ltd v. Zaheer Khan & Anr [(2006) 4 SCC 227]. In this case, Zaheer Khan (“Mr. Khan”), a professional international cricketer, had signed a promotional and representation agreement with Percept D’ Mark (India) Pvt. Ltd. (“Percept”) in 2000. The agreement with Percept was due to expire in October 2003.

Under the terms of Clauses 31 (a) and (b) of the agreement, Mr. Khan was prohibited from accepting any offers for “endorsements, promotions, advertising or other affiliations” during the agreement term and for one hundred and eighty (180) days thereafter. In addition, the agreement provided that before accepting any such offer, Mr. Khan was obligated to inform Percept in writing of all the terms and conditions of such third party offer and provide Precept with the right to match such third party offer. In July 2003, Percept provided Mr. Khan with a fresh agreement for renewing their engagement for an additional period of five years, in accordance with the renewal clause specified in the original agreement. Mr. Khan declined the to renew the arrangement as he was also approached and had received offers from other sports management and representation agencies. Subsequently, Percept approached the Bombay High Court seeking an injunction against Mr. Khan from entering into an agreement with any other agency, claiming that he was in breach of Clauses 31 (a) and (b). The matter was then heard on appeal in the Supreme Court of India (the “Supreme Court”).

The Supreme Court declined to provide any releif to Percept and held that Clause 31 (a) and (b) was void and unenforceable as it restricted Mr. Khan’s freedom and liberty to deal with the persons he wished for his endorsements, and other commercial opportunities. Further, the Supreme Court held that such a restriction extending beyond the tenure of a contract was clearly in violation of Section 27 of the Indian Contract Act, 1872 which prohibits any agreements that are in restraint of trade. Percept was also involved in a dispute on contractual restraints with Yuvraj Singh in Percept Talent Management Pvt. Ltd. v. Yuvraj Singh[9] which was decided in favour of the cricketer on similar grounds.

While the above case dealt with marketing and representation agreements, the principle laid down therein would be equally applicable to endorsement agreements as both types of agreements are considered as contracts for personal services under Indian law. Thus, if the athlete is amenable to include negative covenants in his agreements with the agency or the company, such covenants should be drafted in such a manner that they are applicable only for the term of the engagement.

RETAIN CONTROL OVER IMAGE AND ATTRIBUTES

All endorsement deals conventionally require the athlete to grant the company a right and license to use the athlete’s name, image, likeness, or attributes in such company’s advertising material and in some cases, the company’s products, with the object of promoting the company’s brand or increasing the sales of the company’s goods or services. The athlete should exercise some control over how his attributes may be used under an endorsement agreement as any unauthorised use can adversely impact the athlete’s interests and could be a violation of the athlete’s right of publicity.

The right of publicity

The right of publicity is the right of an individual to control, permit or restrict the commercial use of distinctive features that relate to the individual such as the individual’s name, image, likeness, voice, signature, nickname, sobriquet, etc. The right of publicity also includes “image rights”, which are an individual’s proprietary rights in and to the individual’s personality, and which give the individual the right to prevent unauthorised use of such individual’s personal attributes such as physical or stylistic characteristics, photographs and other personal representations.

In this regard, it should be noted that the availability of a right of publicity to individuals has not been expressly recognised under any statute or conclusively determined in Indian courts, despite several attempts being made to raise the issue. The Supreme Court, in R. Rajagopal v. State of Tamil Nadu [1995 AIR 264], interpreted Article 21 of the Constitution of India, (“Constitution”) which guarantees Indian citizens the right to life and liberty, to also include a right to privacy. The Supreme Court however stopped short of explicitly recognising the right of publicity.

However, in a 2009 dispute[10] between Sourav Ganguly (“Mr. Ganguly”), the former Indian cricket captain and Tata Tea Ltd. (“Tata Tea”), the Calcutta High Court recognised that an individual may have propreitary rights in his attributes. In this case, Mr. Ganguly filed a suit against Tata Tea wherein he contended that Tata Tea had published and disseminated to its customers, promotional material using Mr. Ganguly’s name without authorisation from him. The suit claimed that Mr. Ganguly had suffered loss and damage due to such unauthorised use. While granting interim relief sought by Mr. Ganguly, the Court stated that his fame and popularity was his intellectual property. The dispute was ultimately settled between the parties out of court after Mr. Ganguly withdrew the suit[11].

The issue of right of publicity was addressed to a certain extent by the Delhi High Court in ICC Development (International) Ltd. v. Arvee Enterprises and Anr. [2003 (26) PTC 245] . In this case, the Court held that non-living entities such as events, are not entitled to the protection of publicity rights. The Delhi High Court justified this position on several grounds. The most critical ground being that the right of publicity has evolved from the right of privacy and can inhere only in an individual or in any indicia of an individual’s personality like his name, personality trait, signature, voice, etc. Further, the Court held that while an individual may acquire the right of publicity by association with an event, sport or film, the right of publicity could vest only in a living person and not in a non-living entity, such as the event in question, that made the individual famous. In addition, the Court held that any effort to take away the right of publicity from the individual would violate Articles 19 and 21 of the Constitution, which deal with the right to freedom of expression and the right to life and liberty, respectively. 

Remedies available to an individual 

Due to the lack of any statute or precedent that directly addresses the issue, the remedies available to an individual under Indian law in the case of any infringement of his right of publicity are very limited. In the event that any person or entity causes injury to the business, goodwill or reputation of an individual by trying to pass off its goods or business as those of the individual, the individual may elect to pursue an action of passing off, However, for such an action to be successful the individual would have to establish three essential elements: damage to the individual’s reputation, some form of misrepresentation of the individual and that both of these two elements have caused irreparable damage to the individiual. Alternatively, protection may be sought under trade mark law, as Section 1 (m) of the Indian Trade Marks Act 1999 recognises a “name” as a “mark” and thus having the protections offered to a trade mark. Third parties are thus restrained from misappropriating names for commercial gain such as in the registration of domain names. Indian copyright law also provides limited protection, in the form of a remedy for copyright infringement, in the event that a specific image of the athlete, in transferred or copied onto a medium without proper license or authorisation.

An individual therefore has little recourse with respect to any unauthorised use of his/her attributes in India when there is no agreement in place between the individual and the infringing party. However, in the event that a company enters into an endorsement agreement with an athlete and uses his/her attributes other than as authorised under the agreement, such use would constitute a breach of the agreement and the athlete may be able to approach for appropriate reliefs afforded under contract law. Thus, it is imperative that the endorsement agreement clearly specifies the scope of use of the Athlete’s attributes that is permitted under the endorsement agreement and precludes the company from any use that falls outside such scope. To limit the possibility of unauthorised use, the athlete should retain the right to approve any use of his attributes by the company in each instance and to reject any use that is not permitted under the agreement or any use that may damage his/her reputation in the eyes of the public.

Further, the endorsement agreement should also contain provisions which direct the behaviour of the company and the dissemination of promotional material bearing the athlete during any international sporting event that the athlete may be participating in. Organisers of several global sporting events such as the Olympic Games (through the much debated Rule 40 of the Olympic Charter[12]) and the ICC Cricket World Cup, stipulate limitations and restrictions on advertising featuring athletes for the duration of such events and also for a pre-determined period before and after the event. The organisers either prevent athletes participating in such events from appearing in any advertising for a brand or company that is also not an official sponsor of the event or if permitted, specify the terms on which the athletes may appear in adverting for their personal sponsors. Such restrictions are put in place by organisers in order to prevent unauthorised associations with the event and ambush marketing activities.

The example of M.S. Dhoni 

A famous controversy related to these issues in the Indian scenario, came up during the 2011 ICC Cricket World Cup when the International Cricket Council (“ICC”), the organisers of the event asked M.S. Dhoni (“Mr. Dhoni”), the captain of the Indian cricket team, to cease and desist from appearing in advertisements for Sony[13], a competitor of the event’s official sponsor, LG. While the ICC’s ambush marketing regulations for the event did permit squad members of participating nations to appear in advertisements or endorsements during the event, the players were required to sport only “cricket whites” or “any other casual formal or leisure wear” in such advertisements, and not appear in the national colours of their team. Further the ICC’s rules required that there was no direct association created between the event and the athlete’s sponsor and that there was no usage of logos of the ICC or the event. Mr. Dhoni appearead in the advertisements sporting a blue kit, which was very similar to the playing kit worn by the Indian team during the event. Thus, the advertisements were deemed by the ICC to be in breach of the event regulations. Sony eventually changed the colour of the kit sported by Mr. Dhoni to blackish grey and the matter did not proceed any further.

To avoid any such similar instances, companies should be required adhere to the restrictions and regulations put in place by event organisers and not put out any advertising material for the restricted period unless they obtain specific waivers or permissions, as specified by the event organisers. If the companies violate the event organiser’s regulations, it is the athlete who will face consequences and action from the event organisers.

KNOW THE PRODUCTS OR SERVICES BEING PROMOTED

An athlete should be very clear on the nature of the products or services that he is required to promote or endorse under the agreement. Generally, the athlete will be restricted from endorsing any other products or services that are similar to the endorsed products or services for the duration of the agreement and the territory for which the agreement is applicable. Thus, from the athlete’s perspective, it is recommended to define the product or service category as precisely as possible to ensure that the athlete does not inadvertently lose out on any sponsorship or endorsement opportunities with respect to other products and services

Defining the product or service category in the agreement in a very broad or ambiguous manner may result in the athlete’s attributes being used to promote products or services that the athlete may have never agreed to endorse while entering into the agreement. The use of athlete’s attributes for other products may expose the athlete to unwanted liability or criticism for endorsing or promoting products or services that may be against public interest Such issues may especially arise in cases where a company offers multiple, but distinct products or services under one single umbrella brand. 

The example of Pierce Brosnan and Pan Bahar

A notable example in this regard is the recent controversy surrounding Pierce Brosnan’s (“Mr. Brosnan”) endorsement deal with the Indian company, Pan Bahar. During the intitial weeks of October 2016, Pan Bahar released an advertising campaign featuring Pierce Brosnan, to promote Pan Bahar’s products marketed under the brand name “Pan Bahar” and “Pan Bahar Crystal Masala”. The advertising campaign and Pierce Brosnan himself promptly received severe criticism from several quarters as it was ostensibly put out to promote pan masala, a popular mixture consumed by millions in the sub-continent, sometimes along with betel leaves or tobacco. However, pan masala is also considered to be an unhealthy product as it created with a base of betel nuts, that is carcinogenic to humans.

Subsequently, Mr. Brosnan, through a statement made to a private publication[14], claimed that Pan Bahar had made “unauthorized and deceptive use of his image” to endorse Pan Bahar’s pan masala products. He claimed that under the terms of the endorsement agreement with Pan Bahar, he had agreed to advertise a “breath freshener/tooth whitener, which wouldn’t include an ingredient that turns saliva red” only and that the product was presented to him as “all natural containing neither tobacco, supari, nor any other harmful ingredient.” Further, he stated that he had demanded that Pan Bahar cease using his image to promote their products, and claimed that Pan Bahar “grossly manipulated media outlets” and violated the terms of endorsement agreement to portray him as the the brand ambassador for Pan Bahar’s entire line of products instead of just the product he agreed to endorse.

Pan Bahar responded to the claims[15] made by Mr. Brosnan and stated that the advertisement was made “as per the contract between Pierce Brosnan and the company, following all the formalities” and that “Pan Bahar” and “Pan Bahar Crystal Pan Masala” did not contain tobacco and nicotine and that there was no tobacco product made under this brand name." It was also reported[16] that Pan Bahar had made contact with Mr. Pierce Brosnan and his representatives to settle the matter. However, the television advertisement featuring Mr. Brosnan was also promptly banned[17] thereafter and withdrawn from the country’s television screens.

Surrogate advertising

In light of the Pan Bahar controversy, athletes should also note that certain products are restricted from being advertised or promoted under Indian law. For example, tobacco products and alcohol products are restricted from being advertised under various regulatory and statutory instruments, including but not limited to, the Tobacco Products (Prohibition of Advertisement & Regulation of Trade and Commerce, Production, Supply and Distribution) Act, 2003, the Cable Television Network Rules, 1994[18] and the excise acts of several Indian states. Many companies that operate in the alcohol and tobacco sector in India attempt to create “surrogate advertising” to promote the sale of such restricted products.

Surrogate advertising refers to the practice of using the brand name, logo and/or catch phrase principally associated with products restricted or prohibited from being advertised (such as tobacco or alcohol) in conjunction with a product whose advertising is not so prohibited restricted. While legitimate forms of such advertising is permitted under Indian law, for example, in cases where the brand or logo of the restricted products is truly associated with or is a legitimate extension of the advertised product, those advertisements principally aiming at circumvention of the prohibition or restrictions are prohibited. In the sphere of athlete endorsements, companies have in the past attempted to push through surrogate advertising for their restricted products by having cricketers promote products such as sparkling water[19] and cricket gear[20]. 

Athletes should, therefore, avoid entering into any endorsement deal for products or services that are restricted from being advertised. If any of the products or services proposed to be endorsed by the athlete share their branding, logo or name with restricted products, then the company must covenant to use the athlete’s attributes licensed under the agreement only for the endorsed products and not for indirectly promoting the restricted products.

MANAGING EXPECTATIONS ON DELIVERABLES 

The services and deliverables that an athlete may be required to provide under an endorsement agreement will vary depending upon the nature of the product or services endorsed, the association sought and the marketing objectives of the company engaging the athlete. The scope of endorsement services that may be required can be broadly categorised into the nature of services and the media in which those services may be broadcast or published. These services generally fall within predictable categories in which the performance of the athlete is required, such as modelling for video commercials and print photography, and personal appearances. 

The athlete should carefully consider and understand the services he will be providing under the agreement and ensure that these are documented in a detailed manner in the agreement. The athlete should agree to provide the services sought only after he is satisfied that he will have the necessary time, bandwidth and capability to provide them, after taking into account his other professional commitments. The number and length of personal appearances, which are generally the most valuable asset in an agreement, should be agreed in advance. It is pertinent to note that the scheduling and utilisation of personal appearances are often a source of frustration and contention in an endorsement agreement. Both parties must co-operate with each other in good faith to ensure that the appearances and services are provided and utilised in the manner specified in the agreement. 

Personal appearances: the example of M.S. Dhoni and Karnataka Soaps

An example of personal appearances being a source of much consternation in an endorsement agreement, is the dispute that between Mr. Dhoni and Karnataka Soaps and Detergents Ltd. (“KSDL”) in 2008. In 2006, Mr. Dhoni entered into a two (2) year endorsement agreement with KSDL, a personal toiletries brand, wherein he agreed to provide KSDL with a total of ten (10) personal appearances with five (5) appearances to be used in each year. Mr. Dhoni allegedly made himself available for a total of three days in the first year and thereafter did not provide any further appearances during the term of the agreement. In 2008, KSDL terminated the endorsement agreement and issued him with a legal notice citing breach of the endorsement agreement.

While KSDL made a claim of Rs. 6.5 crore (Approximately USD 950,000) against Mr. Dhoni citing loss of profits, Mr. Dhoni responded with a counterclaim of Rs.13.5 crore (Approximately USD 1,800,000) for “loss of earnings” as he was barred from endorsing any other toiletry brand for a period of two (2) years on account of the agreement. The dispute was heard by an arbitrator appointed by the Karnataka High Court, who eventually dismissed[21] the claims of both parties while finding that no actual damage was caused to KSDL to substantiate their claim of compensation from Mr. Dhoni. Significantly, the arbitrator also held that KSDL failed to utilise Mr. Dhoni and his personal appearances effectively in accordance with the terms of the agreement and effectively absolved Mr. Dhoni of any fault for the non-utilisation of the appearances. 

To avoid any such similar accusations from a company, an athlete could consider specifying critical dates for appearances as firm commitments in the contract. In the event that any pre-agreed dates are cancelled, the agreement must provide the athlete with an option to provide the company with alternative dates for fulfilling his commitments. The availability of the athlete for such appearances should always be subject to and defer to the athlete’s professional sporting commitments. The athlete must not agree to meet any unrealistic expectations that may require him to devote less than the requisite time and attention to the athlete’s sports career.

BE AWARE OF EXIT OPTIONS

All endorsement agreeements, like any other contracts, set out the circumstances under which they can be terminated prior to the expiry of the term. It is important for the athlete to account for any situations where he might wish to exit the arrangement prematurely and attempt to incorporate termination options for all such situations in the endorsement agreement.

Right to terminate 

At the very minimum, the athlete should retain the right to terminate the agreement if the company fails to perform its obligations fails to perform its obligations under the agreement as promised or has breached any terms of the agreement. such instances may arrive when the company does not make timely payments of the fees due to the athlete under the agreement or uses the attributes in a manner that is not authorised under the Agreement.

Conversely, the athlete should limit the termination options that are made available to the company under the agreement. The company may not agree to all the demands made by the athlete, as they may have an interest in protecting their investment or maintaining a long term relationship with the athlete. However, in some cases, the company may explicity reserve termination rights for itself while not providing any such similar rights to the athlete. 

In this regard, Indian legal precedent suggests that as the agreement is a private commercial transaction in the nature of a services agreement, the athlete will be permitted to agreement for convenience even in the absence of such specific right authorising or enabling you to terminate the agreement, provided that the athlete serves a reasonable notice.

The example of Infinity. Optimal Solutions Pvt. Ltd (IOS) v. Vijender. Singh & Ors.

This principle was reinforced by the the courts in Infinity. Optimal Solutions Pvt. Ltd (IOS) v. Vijender. Singh & Ors.[22] By way of background, the case concerned a dispute between Vijender Singh (“Mr. Singh”), the Indian boxer, and Infinity Optimal Solutions Pvt. Ltd (“IOS”), a sports management company. Mr. Singh had, through a promotion and management agreement, granted IOS with the exclusive right to represent Mr. Singh in all commercial opportunities that could arise from such a relationship for a period of 10 years. IOS was to receive a percentage of the prize money earned by Mr. Singh in any professional boxing opportunities as well as endorsements and other commercial opportunites. Further, IOS had agreed to pay Mr. Singh a monthly retainer for the first year of the agreement with a 10% increase in the retainer amount comtemplated for each subsequent year.

Under the Agreement, IOS was given the right to terminate the agreement by providing Mr. Singh with one month’s notice if his performance was deemed to be “below par or below standard”. IOS was also provided the right to terminate the agreement without notice in case Mr. Singh was found to be involved in controversial issues that detracted him or affected his ability to perform. However, the agreement did not include a provision that explicitly provided Mr. Singh with the right to terminate the arrangement. Despite the exclusive rights granted to IOS under its agreement, Mr. Singh, in 2009 entered into a similar agreement with a third party sports management agency. IOS promptly filed a suit in the Delhi High Court against Mr. Singh, seeking a permanent injunction to restrain him from entering into such agreement till the completion of the ten (10) year term specified in the agreement between Vijender and IOS and an order of specific performance compelling him to perform the remainder of his agreement.

While giving its order, the Court noted that where a contract was entered into for mutual profits and gains and if continuing to stay in the contract is found to be disadvantageous for either party, the contract could be terminated by either party irrespective of whether there is a termination clause in the contract or not. Further, the court stated that the right of termination of contract cannot be restricted only to one of the parties to the contract. The Court also went on to hold that a contract of representation and services is based on mutual trust and if the trust is lost between the parties, one party cannot be legally compelled to keep the contract alive. The Court ruled in favour of Mr. Singh and held that in view of Section 27 of the Indian Contract Act (which prohibits agreements in restraint of trade), he could not be restricted from terminating the agreement with IOS and entering into a contract with a different entity.

Thus, the athlete may take note that even in instances where he/she is not provided with an explicit right to terminate the agreement, the athlete may will be able to terminate the agreement and walk away from the arrangement.

Contemplating outcomes and consequences on termination

On a related note, it is also important for the athlete to contemplate the outcomes and consequences that he would wish to see in case the agreement is terminated. These consequences must be documented in the agreement itself. Often, the consequences include proportionate payment of the endorsement fee and a requirement on the company or brand to withdraw all promotional material featuring the athlete’s attributes and cease to portray itself as having any association with the athlete. It is also important to note that in case the agreement is terminated for breach, contract law does not favour “penalties” for breach that are unconnected to the actual loss or damage suffered and therefore the nomination of liquidated penalty amounts, regardless of circumstance, is rarely recommended. Regardless, overall principle to be adopted which specifying the consequences of termination is that they should serve as a deterrent to prevent the company from terminating the agreement unless absolutely compelled to do so.

MINIMISE LIABILITY AND RISK 

By endorsing or promoting a particular company or its products, an athlete brings a level of attention, credibility and trust, along with other intangible benefits to such company. While this enables the company or brand to enhance the sales of its products or services, it also places the athlete as the face of the company when it comes to the general public.

From the athlete’s perspective, one major downside to this arrangement is that this also causes the athlete to be the focus of any ire from the public in the event that there are any negative issues that arise in relation to the company, products or services being endorsed by the athlete. Further it also raises the question as to whether celebrities can be made liable to consumers for the products they endorse, especially in cases where they make unsubstantiated claims.

The example of Nestle’s Maggi instant noodles

This issue has recently been in the spotlight in India, in light of the controversy surrounding Nestle’s Maggi instant noodles in 2015. Maggi, was at that time a nationally recognised brand and accounted for nearly 90%[23] of the total instant noodle market in India. In May 2015 tests conducted on Maggi by food regulators in Barabanki, Uttar Pradesh (India’s largest state) found that the samples contained an unnaturally high level of monosodium glutamate (MSG), as well as several times the permissible limit of lead. These findings initiated a chain of events which eventually led to a nationwide ban[24] on the sale of all variants of Maggi by the Food Safety and Standards Authority of India (“FSSAI”). While the ban was later lifted[25] by the Bombay High Court, all existing stock of Maggi was withdrawn from the market in the interim and the brand suffered a significant dip in sales and value.

Subsequent to the withdrawal and the ban, members of the general public filed police complaints[26] against renowned Hindi film actors, Amitabh Bachchan and Preity Zinta, who had acted as brand ambassadors of Maggi prior to the controversy, and Madhuri Dixit, who was a brand ambassador for a variant of Maggi at the time of the controversy. The complaints were filed Section 270 (malignant act likely to spread infection of disease dangerous to life), Section 273 (sale of noxious food or drink), Section 276 (sale of drug as a different drug or preparation) and Section 420 (cheating and dishonesty) of the Indian Penal Code, 1860. While these complaints did not gain much traction after the initial furore and are still pending in the Supreme Court, the controvery sharply brought into focus the issue of the liability of endorsers in India for the products or services they endorse. 

In this regard, it should be noted that currently there is no statute or regulatory instrument in India which explicitly regulates celebrity endorsements in India or specifically addresses the liability of endorsers. However, athlete or celebrity endorsers can be made liable with respect to false or misleading endorsements of any food and beverage products under the Food Safety and Standards Act, 2006 (“FSSA Act”).

The FSSA Act, which is the nodal statute concerned with the regulation of food and beverage products in India, provides regulations and norms for the manufacture, sale, distribution and advertising of food and beverage products in India. Section 53 of the FSSA Act, punishes any person who publishes or is a party to the publication of an advertisement which

1. falsely describes any food or beverage product;
   
   
2. is likely to mislead the consumer of the nature, substance or quality of the food or beverage product; or
   
   
3. provides consumers with a false guarantee.

Section 53 also prescribes a monetary penalty of upto Rs.10 lakhs (Approximately USD 14,500) on any person who commits such violations and is applicable to both, the person engaged in publication of the misleading advertisement as well as the person who is involved in the publication of the advertisement.

Potential criminal liability for making un-realistic claims about endorsed products: the draft Consumer Protection Bill 2015

Pursuant to the Maggi controversy, it was reported[27] that the government of India was exploring the possibility of enacting measures which would make celebrities accountable for any un-realistic claims made by them with respect to any products endorsed by them. Based on the recommendations made in a report submitted by the Parliamentary Committee on Food, Consumer Affairs and Public Distribution, the Ministry of Consumer Affairs and the Ministry of Law and Justice approved changes in the Consumer Protection Bill, 2015 (“Bill”).

The amended Bill proposes to make any “false or misleading” endorsement which is “prejudicial to the interest of any consumer” an offence. In case an endorser participates in false or misleading advertisements, the Bill provides for jail term of one (1) year along with a monetary penalty of Rs. 10 lakh (Approximately USD 14,500) for a first offence and a jail term of upto five (5) years along with a monetary penalty of Rs. 50 lakh (Approximately USD 72,500) for repeat offenders. However, the proposed Bill also provides that the endorser will not be punished under the Bill in instances where the “endorser took all precautions and exercised due diligence before endorsing a product or service”.

The Advertising Standards Council of India’s Draft guidelines for “Celebrities in Advertising”

In December 2016, the Advertising Standards Council of India (“ASCI”) issued draft guidelines for “Celebrities in Advertising” (“Draft Guidelines”) and invited feedback from the general public. 

The Draft Guidelines seek to ensure that celebrity endorsers exercise a degree of care of diligence with respect to their endorsements. “Celebrity” is defined to include any famous person from the field of entertainment and sports, and specifically exclude business leaders, religious leaders, politicians, government functionaries, bureaucrats and other personalities who may be in the public eye, such as doctors, authors, activists, educationists, etc. The Draft Guidelines provide, among other things, that celebrities should not violate the Code of ASCI’s Code for Self Regulation in Advertising (the “ASCI Code”) in the course of an advertisement. 

The Draft Guidelines place the onus on celebrity endorsers by requiring them to ensure that any testimonials or opinions offered by a celebrity endorser in respect of an endorsed product or service are genuine and based either on adequate information about the product or his/her experience with the advertised product, and further require the celebrity endorser to undertake due-diligence to ensure that any descriptions, claims and comparisons made in advertising are capable of objective substantiation and not misleading. 

In addition, the Draft Guidelines bar celebrity endorsers from participating in any advertising for products or services whose advertisement is prohibited under the Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954, the Drugs and Cosmetics Act,1940 and the Drugs and Cosmetics Rules, 1945, or for certain products, such as cigarettes, which carry a health warning on the product's packaging/labelling by law.

Moreover, the Draft Guidelines provide the ASCI with an advisory role, whereby a celebrity endorser may approach the ASCI seeking advice on whether an advertisement complies with the ASCI Code. However, the Draft Guidelines state that no such advice provided by the ASCI may be considered as pre-clearance of the advertisement.

Contractual terms to limits liability and transfer risk to the company

In light of the current climate in India pursuant to the Maggi controversy and in anticipation of the proposed amended Bill and Draft Guidelines that seeks to attribute responsibility or liability on endorsers, it has become additionally important for the athlete to ensure that any endorsement agreement he enters into includes contractual terms which limits the potential liability of athlete and transfers the risk onto the company. In order to ensure that the athlete is protected, the company must be required to: 

1. Provide appropriate representations and warranties where it undertakes, inter alia, to not require the athlete to make any misleading claims in respect of the endorsed products or services or induce any customer to buy and/or use any of the company’s products or services with misleading claims;
   
   
2. Provide the athlete with the scientific basis of any claims made in the advertisement;
   
   
3. Ensure that any advertising content with respect to the products does not include any personal guarantee or representation on the part of the athlete about the usefulness, nature or quality of the product, unless the same is capable of being substantiated with scientific proof;
   
   
4. Indemnify the athlete for any loss caused to the athlete as a result any breach of the agreement or any misfeasance, malfeasance or negligence on the part of the company and also specifically indemnify and provide assistance in defence on account of any prosecution arising out of false advertising; 
   
   
5. Procure and/or undertake general liability insurance for the endorsement deal and product liability insurance for the products to be endorsed, with both policies listing the athlete as an additional insured party in such policies;
   
   
6. Incorporate a limitation of liability clause which provides that the athlete will not be responsible to the company for any indirect, incident or consequential losses under the agreement and which limits the aggregate liability of the athlete to a pre-determined, which should, ideally be equal to or less than the total fee to be received by the athlete under the agreement.

CONCLUSION

Under the current legal and commercial framework in India, the balance of power with respect to endorsement agreements is weighted towards the athlete rather than the company, whether such company is a small entity or a conglomerate.

As long as the athlete seeks advise from professional advisers with appropriate local expertise, the athlete can be confident that the law enables an athlete to dictate the terms of any endorsement relationship to the athlete’s benefit.

Such a relatively low-risk but commercially fertile environment will no doubt encourage more and more athletes to actively solicit and enter into brand endorsements in India going forward, provided that the companies are confident that such athletes are a persuasive face in the eyes of the Indian public.

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Author

Roshan Gopalakrishna

Roshan is Counsel (Sports & Entertainment) at LawNK, a Bangalore based niche law practice specializing in sports, intellectual property, media and information technology laws. In addition, Roshan is also the Chief Legal Counsel at Copyright Integrity International, a world leader in the protection of digital and broadcast rights. Roshan is a graduate of the National Law School of India University, Bangalore.

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R. Seshank Shekar

Seshank is an Associate at LawNK, a Bangalore based niche law practice specializing in sports, intellectual property, media and information technology laws. 

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