Defining Disparagement
Disparagement is the utterance of false oral or written words that tend to diminish the respect, goodwill or confidence in which a person is held, or to detract from their good reputation . Disparagement is generally regarded as defamation in a commercial context. An example of disparagement is when a user rates a product or service without having actually used it.
Comparing Disparagement and Defamation
While disparagement and defamation are often used interchangeably, they are distinct and separate torts with certain differences. Disparagement generally refers to words spoken in derogation of the character or trade of a person or the quality of a person’s employment provided that the words are published. "To disparage, under the common law, means to make a false statement tending to injure a man in respect of his office, profession, trade or employment." McCamish, at 614. Stated differently, disparagement applies primarily to business, trade or profession. "The key distinction between the two is that slander of title [or disparagement] is limited to statements which relate directly to the title, conditions and quality of property, thus directly affecting the potential property interests of its owner. On the other hand, slander of goods [or defamation] extends more broadly over qualities not related to the intrinsic value of the property." McCamish at 613. Defamation, however, applies to an individual or a group. "The essential elements of the tort of defamation as adopted by our courts are: (1) a false and unprivileged communication of a specific defamatory statement of fact concerning an individual to a third party (2) fault on the part of the publisher (3) actual damages or general damages asserted." Lawrence at 695.
The Legal Aspects of Disparagement
Disparagement is traditionally an action by which an individual claims to have been damaged in his business, trade, profession or office, by means of false statements which have lowered his reputation. To establish a case for disparagement, the plaintiff must prove that the defendant made false statements regarding the plaintiff and that these false statements were published to a third party. A plaintiff is entitled to recover for extrinsic or general damages and mental anguish. "True" statements are also not actionable even if they are damaging to the plaintiff’s reputation. The critical distinction between a defamation and a disparagement claim is that the defamatory statement concerns a person whereas a disparaging statement involves commercial interests. There is also the legal concept of "trade libel" where a statement made about a business or product is false and has a tendency to reduce the buyer’s willingness to do business with someone or reduces that product’s value. These claims are often filed where the claimant does not want to admit libel or slander because of the more strict measures required to prove such a claim. Similar to defamation, a statement that is merely opinion, when expressed as a statement of fact, can be actionable so long as it meets the elements of disparagement. There is, however, the threshold question of whether the false statements directly concerned the plaintiff’s business. For example, if a competitor states that related to the plaintiff’s business, without focusing directly on the plaintiff’s business, it may be difficult to establish the claim. In addition, it must be shown that the false statement was published to a third party who understood the defamatory statement. A jury instruction has been held that publication of a false statement is required, and exposure to fall within a certain period of time.
Disparagement is governed by state law under the common law of torts. A false statement is published to a third party that results in a pecuniary loss to the plaintiff is the basis of a claim for disparagement. In addition, the plaintiff must establish that the defendant had an intent to injure the plaintiff, or the plaintiff must prove that the false statement resulted from gross negligence. There is also the burden of proof associated with proof of actual damages. Actual damages for a loss of profits is recoverable only if the plaintiff can point to actual losses. A court will consider the evidence under the tender years doctrine for future profits where there is evidence that the business does not require office space and where there is no probability that the owner will alter his manner of doing business because of the disparaging statements. With regard to filing suit, a defendant cannot block an action for disparagement in the absence of a presuit demand letter seeking retraction.
Impact of Disparagement
As we mentioned in prior related posts about false advertising, the law provides remedies for people or businesses that suffer harm from false statements about their goods or services. Since there is no real difference between a public claim that something is false and an individual private claim that something is false, the same is true for disparagement. Are there damages to one’s business? Has the business suffered damage to its goodwill? If so, then remedies exist.
The federal Lanham Act 15 U.S.C.A. Section 1125(a)(8) (relating to false advertising) also provides recovery for unfair competition claims, and remedies are available in the federal courts for disparagement. This is a relatively new area of the law so that the case law is still being developed. Perhaps the most significant case which established a cause of action for trademark disparagement under the federal Lanham Act is a 1981 case involving Sara Lee Corporation . In the case, the court rejected the defendant’s contention that criticism of a competing product was entitled to a "fair comment" privilege and/or was protected by constitutional protections:
"[T]he fair comment privilege does not shield lies….
In the instant case: (1) the statements were in fact false; and (2) the dissemination of the advertisements was knowingly intended to injure plaintiff’s business reputation…. Accordingly, the "fair comment" privilege as a defense to a defamation per se action is not available to defendants."
The damages that can be recovered for a false disparagement of goods or services include loss of profits, injury to business reputation, loss of goodwill, and any other damage proximately caused as a result of the false disparagement. Such statements may also expose the statement’s author to liability for defamation. 15 U.S.C.A. ยง 1125(a). A plaintiff may be awarded both injunctive relief and compensatory damages. McDonald’s Corp. v. McDonald’s Rests. of America, Inc., 45 F.Supp.2d 7 (N.D.Ill.1999).
Avoiding Disparagement
To avoid inadvertent mistakes that might land them in court, both companies and individuals can take steps to prevent disparaging statements from occurring in the first place. Most importantly, individuals should be fully aware of their rights and responsibilities with regard to the comments they make, even in private conversations. By knowing what conduct could lead to accusations of product or corporate disparagement, an otherwise innocent consumer can avoid statements that could leave them facing a lawsuit.
In order to avoid making a statement that could be considered disparaging, the simplest process is to consult legal counsel before taking any action. An individual or business uncertain of whether a particular comment is considered protected speech or if it might fall under the purview of disparagement should seek out advice from an experienced attorney. Consulting a lawyer before taking such action may save time and money by avoiding potentially life-changing legal consequences.
At the same time, there are several best practices that a typical consumer can follow to avoid committing these offenses. When posting on social media sites or leaving negative reviews, it is a good idea to review one’s statements and consider whether they are accurate, truthful, fair, and relevant, as well as whether the statements have the potential to affect the organization’s brand. If a product is defective or a company has engaged in unethical business practices, this is more likely to lead to a product disparagement lawsuit.
Finally, for organizations, the best course of action is to monitor social media and the news on an ongoing basis. If you have reasonable suspicion that an employee might be making disparaging comments (such as the tweet made by a United Airlines employee), your HR personnel should investigate. Additionally, organizations should draft and implement HR policies that prohibit disparaging or defamatory remarks by employees.
Addressing Disparagement
In responding to a claim of disparagement, individuals and companies should be careful to consider the dispute and its implications in context and avoid escalating the situation. The impact of a claim for disparagement can extend well beyond the limits of the lawsuit, particularly if the court issues an injunction or order against the alleged disparager. In circumstances in which a preliminary and/or permanent injunction is granted, the alleged disparager may be required to take down his or her comments in the media, as in Alibi, Inc. v. Mooradian, 433 F. Supp. 2d 1069 (D. Nev. 2006), and may be subject to other relief.
Depending on the factual circumstances, this significant and complex injunctive relief can have long-lasting ramifications for an alleged disparager. It is therefore important to take time to consider the potential consequences of an injunctive order and to understand strategies to limit the impact of such an order. In addition , an injunction could be sought against an alleged disparager’s company, as well as relating to the disparagement of particular products or business lines. Therefore, alleged disparagers may want to consider the possible impact on their businesses and consult with legal counsel to help them manage their reputations and brands when facing such allegations in litigation.
In addition, it is important to consider the potential reputational ramifications of online disparaging remarks early on in the litigation. In particular, alleged disparagers should thoroughly consider the potential long-term implications of a claim for (internet) defamation. Frequently, allegations of internet defamation result in the need to track and monitor the internet conduct at issue on an ongoing basis for purposes of compliance or contempt.