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TRADE
LIBEL: ELEMENTS OF THE CAUSE OF ACTION AND DEFENSES AVAILABLE
INTRODUCTION:
Trade libel
is defined as the publication of a false statement of fact that is an
intentional disparagement of the quality of the services or products of the
plaintiff’s business and that result in pecuniary damages to the
plaintiff. It constitutes a business tort and allows the injured party to
seek both compensatory damages and punitive damages. (The reader is advised
to read the article on Torts, Negligent and Intentional
for a background discussion of torts in general and punitive damages in
particular.)
Clearly
normal competition is not only allowed but encouraged in the United States and efforts to restrict
competition are themselves, illegal. The difference between trade libel and
allowed competition is the knowing falsity
of the statements made and the intent to use that falsity to achieve
economic advantage.
This
article shall discuss the basic elements of that cause of action and the
remedies normally available to the injured party.
What Are the Elements of the
Cause of Action?:
1. The
defendant must have “published” an untrue statement of fact.
“Published” means communicated same or allowed the
communication of the statement to third parties. While there is a great
deal of law in slander as to what constitutes a publication and whether a
negligent publication can allow a cause of action, the courts normally hold
that if you intended to publish or if you reasonably could have expected
the communication to be published, you are liable.
Remember
“published” does not mean publishing a written paper or book.
It simply means communicated. If the communication is oral, it is slander.
If the communication is written it is libel. Either one can allow a cause
of action.
Thus,
if I post in a public place, such as a web page, information that I know
will be examined by others, that is publishing even if I do not expressly
tell people to open that page. Thus, if I write a letter to a governmental
agency thus have it privileged but send
a copy of the letter to an addressee who I know will spread the letter
around, that is publishing. Thus if
I loudly make comments about you that I know will be overheard, that is
publishing.
2. The
statements or written communications must be untrue. It is an axiom of the
law that truth is an absolute defense to claims of slander or libel. (This
is not necessarily true for other related torts such as invasion of privacy
or intentional infliction of emotional distress.)
3. The
defendant must have made the communications knowing they were false or with
reckless disregard of the truth. (Leonardini v Shell Oil Co. (1989)
216 CA3d 547.) Reckless disregard of the truth is determined on a case by
case basis but essentially means that no reasonable person would have
considered the defendant’s fact finding as acceptable practice prior
to publishing the untrue statements. A typical situation is that the
defendant claims the product is unsafe without either testing the product
or investigating the claims of lack of safety in any verifiable manner.
4. The
communication must have resulted in pecuniary damage to plaintiff.
Plaintiff must have loss of business or the plaintiff’s business have
been significantly damaged in reputation to the extent that loss of future
business may be proven.
5. The
statement must have been more than a statement of opinion. It must be a
statement of fact. Thus, if someone expresses an opinion that your products
are poorly made and possibly unsafe and makes it clear it is an opinion
that is unlikely to be held to be trade libel. Compare two different types
of communications: “In my opinion, the oil is likely to cause harm to
your engine,” versus, “The oil is likely to cause harm to your
engine.” The latter, if untrue, would be trade libel. The former may
not be. Published statements of opinion do not constitute trade libel: they
must be statements of fact which are untrue.
The Necessity of Proving Actual
Damages
Unlike
some torts in which “general damages” can be proven, in trade
libel it is necessary for the plaintiff to prove a direct proximate
monetary result of the libel which harmed the plaintiff’s particular
business. Typical slander or libel causes of action (see our article on
Torts, Negligent and Intentional) protect
the reputation of the plaintiff thus general damages can apply but trade
libel protects only the business, thus direct effect on the business must
be demonstrated. Leonardini v Shell Oil Co, supra. The tort
concentrates on reputation of a party’s goods or services as
distinguished from the tort of defamation which focuses on an
individual’s reputation.
Typical Defenses
The
essential elements above can all be challenged by the defendant, to wit,
defendant can argue that the statements were not made; were not false; were
not intentionally false or made with reckless disregard of the trust; or
caused no direct harm to plaintiff’s business.
If
statements are either ambiguous or susceptible of an innocent meaning, the
plaintiff must prove that innuendo or common sense would have made them
disparaging. (Nicols v Great American Insurance Company (1985) 169 CA 3d, 766.) Jokes about a
product have resulted in causes of action against a comedian but the court
found for the comedian when the plaintiff wine company failed to establish
that the comedian’s remarks about wines in general directly damaged
their sales. (Polygram Records Inc. v Superior Court (1985) 170 CA3d 543.)
And the
defenses mentioned in our article on
Intentional
Interference with Prospective Business Advantage as to
privilege, the First Amendment, etc. all equally apply to this cause of
action and the reader is directed to that article.
Additionally,
it must be emphasized that competitors have a conditional privilege to make
favorable comparisons of their products with those of others; criticisms of
a competitor’s product based on appeals to the personal taste or
preference of buyers are privileged statements long protected by the
courts. (Rosenberg v J.C. Penney Co. (1939) 30 CA 2d 609). That privilege is lost if the statements
include false statements of purported facts and if the statements are made
with malice or without good faith. (Rosenberg case, supra.)
Statute of Limitations
The
Statute of Limitations (when suit must be brought) varies based on the
underlying thing disparaged. Since it is normally an injury to property
(business) the applicable statue is normally two years from date of
wrongdoing. (CCP Section 339). However, if title to property is involved
(leases; real estate in any manner) the statute of limitations can be three
years. (CCP Section 338.)
Conclusion
Both
injunctive relief and pecuniary damages are often available to the injured
party and in remarkably extreme cases, punitive damages may lie. However,
the normal reaction of a judge or jury is to favor free competition thus
this tort is not an easy one to prove. Unless the plaintiff can find some
written proof via internal memos or e mails or earlier correspondence sent
to the defendant with the true facts sitting in defendant’s files, it
can be both expensive and futile to plead this cause of action.
Thus
this action is normally plead in conjunction with numerous others causes of
action for business torts, discussed on this web site, which constitute the
typical unfair competition torts, and the pattern of conduct before a judge or jury can often result in a
jury being more willing to view the actions of the defendant with a
jaundiced eye.
But
this particular cause of action can be a powerful one if the right evidence
is developed. Recall that it is often the public that is the real victim of
the falsehoods, and the experienced litigator can make an excellent
argument that the ultimate result of such falsehoods is to destroy
competition by driving good products off the market by lies and innuendos.
“It is not we who are seeking to
stop competition, Ladies and Gentlemen. We, ourselves, and you, eventually,
are the victims of every business who abuses the rules of fair competition
by lies and slanders. We welcome fair competition and will meet it head
one. What we do not welcome is a pattern of unfair competition composed of
carefully crafted and often devious falsehoods designed to remove
competition by driving us out of business by means of cheating, fraud, and
attacks on our integrity…”
Such
closing arguments can have a tremendous influence on a jury who recalls
personal experience of buying inferior products since the competition had
been driven from the field by rapacious companies.
Defending
such a claim requires the astute party to defend the concept of competition
and indicate that the very act of bringing this cause of action by the
plaintiff is an effort to stifle fair criticism and silence a
competitor’s honest efforts to educate the customer. The action would not have been brought
unless an untrue statement was made, but the intelligent defendant can
still argue that it was an honest mistake, not a malicious one, and an
honest mistake that anyone could have made.
These
cases can be fascinating ones for the judges and juries but must be
carefully considered from a cost benefit perspective by the business person
considering bringing such an action. Anger and emotion must be set aside
and an objective view of the business realities considered. One of our
clients, wrongfully slandered, decided that “beating the bums”
in the market place was her best move and concluded that litigation would
not be an efficient way to do that. Another client, seeing sales slide due
to claims of unhealthy ingredients, concluded that a public trial was not
only emotionally satisfying, but a vital part of his campaign to save his
business and did not halt his action until the defendant, shortly before
trial, published a public apology and correction.
Each
case is different as is each market and each business. But if, after
careful consideration, the cost benefit seems worthwhile, this can be a
cause of action of remarkable effectiveness.
These Articles are
to give the reader a general description of certain areas of the law. Legal
advice is necessary to apply these legal concepts to your particular
situation. The Reader should obtain competent legal advice before
relying on the Articles.
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