Are platforms liable for misleading advertisements made by influencers or sellers?

The growth of influencer marketing and the rise of third-party sellers on e-commerce platforms have created a new challenge in the realm of consumer protection. Often, influencers or sellers advertise products on these platforms, and if their advertisements are misleading, it can cause significant harm to consumers. However, the question arises can e-commerce platforms be held liable for such misleading advertisements? Under Indian law, how are platforms regulated to ensure that the advertisements, whether by influencers or third-party sellers, adhere to the advertising standards? Let’s explore the legal framework and liabilities for platforms in relation to misleading ads.

Legal Framework for Misleading Advertisements in E-Commerce

• Consumer Protection Act, 2019

The Consumer Protection Act, 2019 (CPA) explicitly deals with misleading advertisements and protects consumers from deceptive marketing practices. Under this Act:

• Misleading Advertisements: A misleading advertisement is defined as any advertisement that misrepresents the product or service, causes confusion, or promotes products with false claims.
• Liability of Platforms: Platforms can be held liable for misleading or false advertisements if they are found to be facilitating, promoting, or failing to prevent such advertisements. This includes influencer marketing and third-party seller ads.
• Penalties: The Consumer Protection Act allows for penalties for platforms found guilty of promoting misleading advertisements. The platform may be required to refund consumers, compensate for damages, and face fines.

• E-Commerce (Consumer Protection) Rules, 2020

The E-Commerce (Consumer Protection) Rules, 2020, issued under the Consumer Protection Act, impose certain obligations on e-commerce platforms related to advertising:

• Due Diligence: E-commerce platforms must ensure that the advertisements placed on their platform, whether by influencers or third-party sellers, are truthful and accurate.
• Transparency and Accountability: The rules also mandate that platforms must disclose whether advertisements are sponsored by influencers or sellers, and they must ensure that the claims made in these ads are fact-checked and not misleading.
• Responsibility to Prevent Deceptive Ads: Platforms are expected to take reasonable measures to prevent the display of misleading or false advertising on their sites.

• Advertising Standards Council of India (ASCI)

The Advertising Standards Council of India (ASCI) lays down guidelines for ethical advertising and truthful representation of products. These guidelines apply to all forms of advertising, including influencer marketing and e-commerce ads.

• Platforms are encouraged to comply with ASCI’s guidelines and remove advertisements that violate these standards. If an influencer or seller violates ASCI's guidelines by making misleading claims, the platform can be held responsible for allowing such content.
• If an ad is found to be misleading, ASCI can issue a notice to the platform, which then becomes legally obligated to remove the ad and take action against the seller or influencer.

• Influencer Marketing Guidelines

The Ministry of Consumer Affairs has issued guidelines for influencer marketing, especially regarding disclosure and advertisement transparency. Influencers must disclose when they are promoting products for which they are compensated, and platforms must ensure that these disclosures are clearly visible. Failure to ensure such compliance could result in penalties for the platform.

Liability of Platforms for Misleading Advertisements

• Direct Liability for Misleading Ads

E-commerce platforms can be held directly liable if:

• They allow misleading ads to remain on their platform.
• They fail to take action when notified of false claims or deceptive marketing practices.
• The platform actively promotes misleading ads or does not provide adequate fact-checking systems for influencers or third-party sellers.

• Vicarious Liability

In some cases, platforms may also be held vicariously liable for misleading ads created by third-party sellers or influencers. This means that the platform could be held responsible for failing to monitor or regulate the content on their platform, even if they did not directly create the misleading ad.

• Legal Consequences for Non-Compliance

Platforms that fail to comply with advertising standards can face a range of legal consequences, including:

• Fines and penalties under the Consumer Protection Act, 2019.
• Civil lawsuits filed by consumers or advocacy groups seeking compensation for damages caused by misleading advertisements.
• Suspension of business or temporary bans on operating in India if the platform consistently allows fraudulent or misleading content.

Example of Legal Action

If an influencer promotes a weight loss pill on an e-commerce platform with false claims like lose 10 kg in a week without exercise, and the platform fails to remove the post, the platform can be held liable for facilitating misleading advertisement. The platform may be penalized by the Consumer Protection Authority and forced to compensate affected consumers.

Penalties for Platforms

• Fines and Compensation

E-commerce platforms can face fines for promoting misleading content or for failing to ensure that ads comply with the Consumer Protection Act or ASCI guidelines.

• They may be required to compensate consumers who were misled by fraudulent claims made in the advertisements.

• Removal of Content

Platforms may be ordered to remove misleading ads, and they may also be required to prevent future misleading advertisements by imposing stricter content moderation processes.

• Regulatory Actions

Regulatory bodies like the Central Consumer Protection Authority (CCPA) may also take action, including investigations into the platform's advertising practices and directing them to adopt better monitoring systems.

Example Scenario of Misleading Advertisement

Suppose a well-known influencer promotes a beauty product on an e-commerce platform, claiming that it will erase wrinkles in 3 days. Consumers purchase the product based on this claim, only to find that it does not live up to the promises made in the advertisement.

Steps the platform should take:

• Remove the advertisement once the misleading claim is identified.
• Investigation into the influencer’s actions and whether the platform facilitated the advertisement without proper fact-checking.
• If the influencer’s claims are found to be false, the platform may face penalties for failing to ensure compliance with advertising standards.

Conclusion

Yes, e-commerce platforms can be held liable for misleading advertisements made by influencers or sellers under Indian law. Platforms are obligated to ensure that advertisements on their site are truthful, transparent, and comply with the Consumer Protection Act, 2019, E-Commerce (Consumer Protection) Rules, 2020, and ASCI guidelines. Platforms that fail to monitor or regulate misleading ads can face penalties, fines, compensation to consumers, and other legal consequences.