Can e-commerce platforms be held liable for influencer-run shops on social media platforms?

The rise of influencer marketing has led many influencers to run online shops through social media platforms, selling products directly to their followers. While this model has proven to be highly effective, it also raises questions about legal responsibility and accountability. Can e-commerce platforms, which host these influencer-driven shops, be held liable for deceptive practices, counterfeit goods, or fraud? As influencer-run businesses often operate on a decentralized model, it can be difficult to determine where the responsibility lies whether with the influencers, the platforms, or the third-party sellers.

Liability of E-Commerce Platforms for Influencer-Run Shops

• Influencer Marketing and E-Commerce Platforms

  • Influencers often use e-commerce platforms or social media platforms to sell products, but they generally act as intermediaries. They promote products, but the actual transaction usually takes place through a third-party e-commerce site or platform, like Instagram Shops, Facebook Marketplace, or Amazon.
  • Despite being intermediaries, platforms may still face legal responsibility, particularly when the influencer is violating advertising or consumer protection laws, or when the goods being sold are counterfeit or defective.

• Consumer Protection and Misleading Marketing

  • Misleading Advertisements: Indian law, under the Consumer Protection Act, 2019, requires that advertisements and marketing be honest and not mislead consumers. If an influencer promotes a product that turns out to be defective, counterfeit, or falsely advertised, the e-commerce platform could be scrutinized for not removing or investigating such listings.
  • Liability for Misrepresentation: Platforms that allow influencers to run shops or promote products may be held liable if the influencer misrepresents the product, especially if the platform failed to monitor or control the advertisements or ensure product authenticity.

• Product Authenticity and Counterfeit Goods

  • Counterfeit Products: In India, the sale of counterfeit products is illegal under the Trade Marks Act, 1999 and other related laws. E-commerce platforms are responsible for ensuring that products sold through their platforms are authentic. If an influencer's shop promotes or sells counterfeit goods, and the platform is found to be facilitating this activity, it could be held accountable.
  • Due Diligence: E-commerce platforms are expected to take reasonable steps to ensure that the products listed on their platform are genuine. This includes conducting due diligence to prevent the sale of counterfeit or substandard goods. If an influencer is using an e-commerce platform to sell counterfeit goods and the platform does not take action, it could face legal consequences for not adhering to consumer protection regulations.

• Influencer’s Legal Responsibility

  • Direct Liability of Influencers: Influencers are responsible for the products they promote, especially when it comes to misleading claims or fraudulent activities. In India, influencers can be held accountable under the Consumer Protection Act and Advertising Standards Council of India (ASCI) guidelines for promoting products that mislead consumers or violate advertising laws.
  • Transparency in Paid Promotions: According to ASCI guidelines, influencers must clearly disclose when a post or advertisement is sponsored or when they are promoting a paid product. E-commerce platforms may be indirectly liable if they fail to ensure that influencers comply with these regulations.

• Platforms as ‘Intermediaries’ vs. ‘Active’ Participants

  • Intermediary Status: E-commerce platforms are often classified as intermediaries under Indian law. As per the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, platforms are generally not held liable for the content posted by third-party sellers or influencers unless they have actual knowledge of the illegal activities.
  • Active Involvement: However, courts have begun to hold platforms accountable when they are found to be actively participating in or promoting fraudulent or deceptive sales practices. If platforms facilitate, endorse, or fail to take action against fraudulent influencer-run shops, they may be held liable.

• Legal Precedents and Judicial Trends

  • Influencer Misrepresentation Cases: Courts have started to pay more attention to influencer marketing practices. The National Consumer Disputes Redressal Commission (NCDRC) has ruled in several cases where fraudulent sales or misleading advertisements promoted by influencers have led to compensation being awarded to consumers.
  • Liability Under Consumer Protection Act: Indian courts have shown that platforms can be held liable for unfair trade practices under the Consumer Protection Act, 2019 if they allow influencers to promote products that violate consumer rights or mislead consumers.
  • Duty of Due Diligence: Courts have also emphasized the duty of due diligence. In cases where e-commerce platforms have failed to verify the authenticity of products sold by influencers or have allowed influencers to make false claims, they have been held accountable.

• Emerging Judicial Trend

  • Strict Monitoring and Transparency Requirements: With increasing incidents of misleading advertisements and fraud, courts are likely to require e-commerce platforms to implement stronger monitoring systems to ensure that influencers follow advertising guidelines, do not sell fake goods, and disclose all sponsored content transparently.
  • Enforcement of ASCI Guidelines: Indian courts may increasingly refer to the Advertising Standards Council of India (ASCI) guidelines, holding platforms responsible for enforcing these rules among influencers. Platforms that allow influencers to violate these rules may be penalized.

• Example Case

  An influencer on Instagram promotes a skincare product claiming it can cure acne within 7 days. The influencer, without proper testing or certification, fails to disclose that the product is not approved by relevant health authorities. Consumers, after purchasing the product, experience side effects and file a complaint.

  Court’s Action

  • Liability of Influencer: The influencer is held liable for misleading advertising, as they failed to verify claims about the product’s effectiveness and did not disclose the sponsored nature of the post.
  • E-Commerce Platform’s Responsibility: The e-commerce platform that facilitated the sale of the product is also held responsible for not enforcing proper checks and ensuring the product was safe for consumers.
  • Compensation to Consumers: The court orders a refund to the affected consumers and imposes penalties on both the influencer and the platform.

Conclusion

E-commerce platforms can indeed be held liable for influencer-run shops on social media platforms, particularly when it comes to misleading marketing, counterfeit products, and consumer fraud. While platforms are usually considered intermediaries, they are increasingly being required to take responsibility for the products sold and the content promoted by influencers. This emerging trend reflects a growing recognition of the need for platforms to enforce consumer protection laws more actively, ensuring transparency, product authenticity, and adherence to advertising regulations. With stricter enforcement expected, both influencers and e-commerce platforms must exercise greater caution in their marketing practices.