Introduction:
Trade libel is a cause of action in which a business sues another business or individual for making false and damaging statements about its products or services, resulting in financial loss. It's a specific form of defamation focused on a company’s commercial reputation.
While the action has existed for well over a hundred years, the advent of social media has greatly enlarged the forums in which a company may be disparaged, with a single click of a key allowing the message to be disseminated to thousands, perhaps millions of people. This, in turn, has caused increasing concern among businesses that see their reputation attacked by anonymous or semi-anonymous "customers" who they fear may be competitors. One solution would be to commence legal action to stop this. This article shall discuss the characteristics and pros and cons of such a decision.
The Basic Law:
The elements of a trade libel case are as follows:
False Statements: The basis of a trade libel claim lies in the false statements made about the business. These statements appear as facts, not opinions.
Financial Loss: The false statements must directly result in financial damage to the business’s interests.
Libel is an untrue defamatory statement. Slander is a verbal defamatory statement.
Whether it is libel or slander, there are essential elements that a plaintiff must show to be successful in a defamation claim:
A person published a statement.
The statement was not true.
The statement caused an injury to the plaintiff.
The statement was not in a privileged category.
Examples of business disparagement are when:
• A customer publishes false and malicious statements about a business on Google or Yelp.
• A store’s advertisement falsely states that a competitor’s product does not meet government quality standards or is made by slave labor.
• A person issues a false report claiming that an oil company is violating offshore drilling or safety standards.
A business must file an action for commercial disparagement within two years of the disparaging statement’s publication in California.
A privileged form of communication arises when a party asserts that the communication was created while offered special protection by the law, e.g., "privileged." Privileged statements are typically those contained within court records or judicial proceedings.
Legal Defenses and Remedies
Some defenses can protect a party against defamation claims, including truth, opinion, and absolute defenses. Additionally, "actual malice" may at times have to be shown, though this defense generally applies only to public figures rather than business owners.
The Defenses:
Truth: If the statement is true, it is an absolute defense against defamation claims.
Opinion: Opinions are generally protected by the First Amendment. They are not typically considered defamation, as they are subjective expressions.
Public Figures: Celebrities and politicians face a higher burden of proving defamation. This is due to the concept of "actual malice."
Statute of Limitations: Trade libel claims have a limited filing timeframe. It’s essential to understand the statute of limitations in your jurisdiction.
Disclaimer: Including disclaimers on statements can help clarify that they are opinions or unsubstantiated claims.
The Damages Possible:
Special Damages: These are quantifiable monetary losses directly linked to false statements.
General Damages: Non-monetary losses. This could include harm to reputation, emotional distress, and loss of business opportunities.
Punitive Damages: In cases of extreme misconduct, courts can award punitive damages. Punitive damages serve to punish the wrongdoer and deter similar behavior. They are difficult to obtain in most circumstances, absent gross negligence, intentional misconduct, or malice.
The Jury receives instructions from the Judge in making a verdict, and the following is the Jury instruction for Trade Libel in California:
CACI No. 1731. Trade Libel - Essential Factual Elements
Judicial Council of California Civil Jury Instructions (2025 edition)
1731. Trade Libel - Essential Factual Elements [Name of plaintiff] claims that [name of defendant] harmed [him/her/nonbinary pronoun] by making a statement that disparaged [name of plaintiff]’s [specify product]. To establish this claim, [name of plaintiff] must prove all of the following: 1. That [name of defendant] made a statement that [would be clearly or necessarily understood to have] disparaged the quality of[name of plaintiff]’s [product/service]; 2. That the statement was made to a person other than [name of plaintiff];3. That the statement was untrue;4. That [name of defendant] [knew that the statement was untrue/acted with reckless disregard of the truth or falsity of the statement]; 5. That [name of defendant] knew or should have recognized that someone else might act in reliance on the statement, causing[name of plaintiff] financial loss; 6. That [name of plaintiff] suffered direct financial harm because someone else acted in reliance on the statement; and 7. That [name of defendant]’s conduct was a substantial factor in causing [name of plaintiff]’s harm.
Yelp & Google
Nowadays, trade libel issues arise when customers leave negative reviews of a business on internet sites such as Yelp or Google. The legal issues are typically whether a business can either:
File a lawsuit against the internet company if it doesn’t remove a disparaging review; or,
File a lawsuit against the actual customer who made the review.
Concerning suing the internet company, the California Supreme Court has largely made that impossible. They held recently that internet companies do not have to remove negative comments posted by a user. The decision to remove posts is at the company’s discretion. They are not directly liable for statements made by the user unless they somehow participated in generating the false review.
As liability of the user posting the review, the basic rules of trade libel do apply, and the fact that such communication occurred on an internet site is irrelevant. Practically speaking, relief for such reviews is not only hard to obtain but dangerous to seek.
Internet Trade Libel: The Problems:
The rules as to trade libel do apply to disparaging statements made on internet sites. However, there are difficulties in trying to file a lawsuit against a user.
There is often difficulty in identifying the actual critical customers leaving the reviews; and,
The reviewers may have insufficient assets to compensate a business.
The critical customer may be far outside the jurisdiction of the Court, thus making commencing litigation difficult and judgments hard to collect. Suing in foreign countries can be difficult, and many court systems are rife with corruption and delays.
The litigation can take years to progress, and during that time, the angry customer may utilize the very fact of litigation to increase the bad publicity, claiming that the business is trying to shut up legitimate complaints.
Given these difficulties, most injured businesses seek, instead, to counter the claims with well-reasoned business-like responses on the same forum. There are now experts available who can assist the business in crafting appropriate counterarguments and responses. That effort is normally combined with a letter to the complaining customer advising them of the facts and demanding they cease and desist from the libel.
Conclusion:
Reputation matters to a business and can take decades to establish. In today’s social media world, anyone can sling outrageous accusations at a business by merely clicking a mouse and communicating to the entire world. Worse, such actions could easily be done from abroad in a nation that does not enforce the laws. People normally go online to check the reputation of a business, closely reviewing the comments of past customers. The danger of deep damage is very real.
The law courts are a remedy, but so is counter publicity, full and complete responses, and making sure that the world knows that you take attacks on your reputation seriously. At times, you may be forced into court simply to demonstrate your determination to protect yourself, even if recovery is unlikely. Most times, full and powerful responses will do the job.
And if you are a customer reading about a business and see one negative review among many, be aware that there is no filtering of such reviews by internet companies, so take the complaints with a grain of salt.