What Is Trade Libel?

Trade libel is a type of defamation and falsehood that purposely tries to damage the name and quality of a company's goods or services. When someone makes false claims about your business, you might be able to file a lawsuit under trade libel laws. To win a trade libel case, you as the plaintiff or person suing must show a false published statement and evidence that it's untrue, caused injury, and was not in a privileged category.

Why Is Trade Libel Important?

Running a business isn't easy. All your hard work eventually creates a good reputation and results in a loyal customer and supplier base. However, negative comments from customers or other companies can destroy or limit your business potential. If these statements are false, defamation laws help protect your business and reputation. 

How Can I File a Trade Libel Lawsuit?

Each state has different defamation laws. Know your state's guidelines before taking legal action. Most trade libel laws are similar to a defamation case, but with four differences known as the Cause of Action:

  • A defendant made a false statement about the quality of your business products or services.

This means that the statement was knowingly false or with reckless disregard for truth, as seen in the court case of Leonardini vs. Shell Oil Co. Disregard of truth is always examined on a case-by-case basis. An example is a situation where the defendant claims the plaintiff's product is unsafe without testing or verifying those claims.

  • The statement was published.

Courts hold the defendant liable if he or she published or intended to publish the false statement. Published doesn't necessarily mean in a book or paper. It only means the statement is communicated. For example, if the defendant puts the statement on a webpage, it's published, even if they do not direct traffic to the site.

  • The statement must be fact and not opinion.

If the defendant starts a sentence with "in my opinion," it's not trade libel. However, if they make the same statement without stating it's an opinion, it might be trade libel. 

  • You suffered a monetary loss or harm due to that statement.

You must have suffered a loss on paper. In addition, you can state that your reputation was damaged enough to affect future earnings. You must prove the amount of loss as a result of the trade libel. This is different from general defamation.

If the defendant proves any of these wrong, you won't win the trade libel case. There are, however, several loopholes. One that's hard to prove is whether the statement was, in fact, a statement or just a matter of opinion. You must also have evidence to back up your claim of harm or loss via a third-party statement. If you do meet these requirements, trade libel entitles you to monetary damages.

Why Is Trade Libel Difficult to Litigate?

American business law encourages healthy competition. Efforts to restrict this competition are illegal. Therefore, it's hard to define the line between trade libel and competition. The burden of proof to decide whether a statement was knowingly false and intended to gain an economic advantage is entirely on the plaintiff.

In addition, competitors can make favorable comparisons of their products to others in their industry. Critiques based on consumer preferences are privileged statements protected by the courts (Rosenberg v. J.C. Penney Co. in 1939).

In some cases, the plaintiff might get monetary relief. Rarely, they might also receive punitive damages. If the plaintiff can find correspondence proving the defendant had the facts, or if it's a repeated behavior, they might have a case. Top-notch lawyers can also point out that the consumer is the victim of trade libel, which is a powerful argument in court. If used as a closing statement, it can have a major effect on the jury. However, most judges encourage free competition, making trade libel difficult to prove.

Because of the difficult nature of proving trade libel, many businesses start a competitive war in the marketplace. This encourages their competitors to bring true competition.

Typical Trade Libel Defenses

The defense can argue that statements:

  • Were not made.
  • Were true.
  • Were not intentionally false or reckless.
  • Caused no direct harm or monetary loss to the plaintiff.

Proving any one of these can cause a case dismissal.

However, a plaintiff might have an answer to these defenses. The plaintiff can argue that ambiguous statements were trade libel based on innuendo or common sense. This was the case in Nicols v. Great American Insurance Company (1985). Comedians have also been the target of trade libel lawsuits as seen in Polygram Records Inc. v. Superior Court (1985). However, the plaintiff could not produce a monetary value of lost business. The case was thrown out.

Trade Libel in Online Marketing

Advertisements stating that a competitor's product or service is of a lesser quality than the company making the claim are cause for trade libel. This could include a social media post that calls a product inferior without a test or comparison.

Social media posts, as well as videos, presentations, or broadcasts, that put a negative spin on a competitor's product or services unfairly, are at increased risk of trade libel. Cases involving online trade libel are becoming far more common. These cases can cost a company a lot of money and seriously damage its reputation.

The Lanham Act and Trade Libel

The Lanham Act states that any person in connection with goods or services who uses false or misleading facts in commercial advertising is liable in a civil action by any company that believes they were damaged by the act. This is also known as the false advertising law.

Defamation vs. Trade Libel

While defamation and trade libel might seem similar, they have key differences.

  • Defamation laws protect the person's reputation of the person. 
  • Trade libel compensates the plaintiff for monetary damage.
  • In defamation suits, the plaintiff is not required to prove the statements are false, as seen in Lipman v. Brisbane Elementary School Dist. (1961). In trade libel cases, the plaintiff must prove the negative statement is false.
  • In trade libel lawsuits, a business or individual cannot receive damages for mental distress. They are limited to monetary damages. Defamation cases might also result in monetary damages.

Recent Cases

FLIR Sys. v. Sierra Madre Inc. was a recent trade libel case. FLIR Sys., a manufacturer of infrared cameras, filed suit against Sierra Madre Inc. Sierra Madre Inc. was the marketing firm for another infrared camera company. Their online video showed what happens when FLIR cameras were dropped from great heights compared to the camera company they represented. FLIR sys. said Sierra Madre's claims were malicious and untrue. While jurors agreed that the drop test might have been false, they found that they weren't malicious. The case was dropped.

Protecting Your Business From Trade Libel

The best way to protect yourself from trade libel is education. Everyone in your organization should become familiar with trade libel and avoid it. To further your protection:

  • Draft a policy that states you do not endorse, authorize, or condone any disparaging information about competitors. Any employee that violates the policy is subject to discipline or termination.
  • Define a review process to check all advertising, marketing, and other communications for trade libel.
  • Conduct training, including tests and continued education, emphasizing the seriousness of trade libel. 
  • Designate a company spokesperson that is familiar with trade libel laws. He or she is the only person that can speak to the press and should receive training or counsel from an attorney.
  • Remember that social media, blogs, and other online sources are difficult to control and increase your chance of being accused of trade libel.

Questions Regarding Trade Libel

  • What is the difference between slander and libel?

Very simply, a defamatory statement is slander if spoken and libel if published.

  • Is there a statute of limitations?

Because it is damage to a business, the statute of limitations, or timeframe to file a case, is within two years of the published statement. If a title to property is involved, the statute of limitations is three years.

  • What if the source of trade libel is anonymous?

Law firms can still file a John Doe lawsuit. This allows them to access and investigate server logs, email accounts, IP addresses, service providers, screen names, and domain name registrations to find the person at fault.

Because so much goes into building your business, you can't let false statements sink you. If you believe someone has published a statement that's trade libel, post your legal need for the experienced and reputable lawyers at UpCounsel.