It is not unusual for a business to be criticized by a competitor or customer. While certain types of statements might be perfectly legal, others can cross the line into trade libel. False and malicious statements about a business’ products or services are prohibited as trade libel but proving damages can often be the more challenging part of the case. Every business should understand the law to ensure they do not act unlawfully as well as to know when they may have a right to sue someone. Consulting legal counsel can help minimize the legal risks or protect your business’ reputation.
What is Trade Libel?
Trade libel is also known as commercial or product disparagement or rumor-mongering. Under New York law, “[t]rade libel or product disparagement is an action to recover for words or conduct which tend to disparage or negatively reflect upon the condition, value or quality of a product or property.” It is considered a form of unfair competition because the disparaging statements are made with the purpose of discouraging the public from dealing with the business. Examples of trade libel might include making false statements that a business has shoddily made products, or its employees were incompetent.
A claim of trade libel is similar to defamation per se in that it requires that a statement be malicious, false, and injurious, but there are also distinct differences as discussed further below.
Elements of Trade Libel
A claim of trade libel requires proof of the following elements:
- A written or oral false statement;
- Published or distributed to a third person(s);
- With the intent, or reasonable belief, that the statement will cause financial loss for the business;
- There is in fact a financial loss for the business (i.e., special damages); and
- It was made with express or implied malice – that is, knowing the statement was false or with reckless disregard of whether the statement was true or false.
It is not enough for a defendant to make false and malicious statements about a business. The plaintiff must show special damages, which means proving the business experienced actual economic losses that were the natural and immediate consequence of the disparagement. Essentially, the plaintiff must establish that the publication of the false material was a substantial factor in inducing others not to have business dealings with it.
When special damages are alleged to be the loss of customers, some courts have required that plaintiffs must specifically name the people who stopped being customers or refused to purchase the product, and failure to do so meant that the plaintiff’s trade libel claim would fail.
Special damages are a necessary element of a trade libel claim, so if there was no concrete financial injury, the claim may be dismissed.
How Is Trade Libel Different from Defamation Per Se?
Defamation per se is a type of defamation that involves false statements that are deemed so inherently injurious that damages to the subject-person’s reputation are presumed. For the corporate plaintiff, defamation per se involves the business’ reputation. As a result, a claim could be brought based on derogatory comments about the business’ ethics, integrity, or creditworthiness. Defamation per se does not require proof of special damages.
In contrast, trade libel applies to false and disparaging statements involving the quality of a business’s products or services. As discussed above, it does require proof of special damages.
What Defenses Exist to Trade Libel Claims?
Trade libel claims can be defended with many of the same defenses as a traditional defamation claim.
If the defendant can prove the statement was true, this is an absolute defense. However, statements can also be defended as being substantially true.
Trade libel does not exist if the disparaging statements express opinion, not fact. To determine the difference between fact and opinion, New York’s Court of Appeals looks at the context of the whole communication to determine whether a reasonable person would view the statements as expressing or implying facts rather than opinion. Relevant factors in distinguishing fact and opinion include:
- whether the language used has a precise meaning or whether it is indefinite or ambiguous;
- whether the statement is capable of objectively being true or false, and
- the full context of the entire communication or the broader social context surrounding the communication.
The Court of Appeals further distinguishes between opinions based on whether or not they are factually supported. A statement that implies its own factual support without disclosing that support can be actionable under trade libel, but an opinion accompanied by statements of the facts that support that opinion is not.
Trade libel can do serious and long-lasting damage to your business. An experienced attorney is essential to helping you protect your rights and obtain damages for any monetary losses to your business. If you have been wrongfully accused of trade libel, contact an attorney who can determine the best defense and advocate on your behalf to avoid or minimize liability.
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