Business and commercial disparagement, also referred to as trade libel, is a civil cause of action under California tort law. The law states that businesses may sue people, or other business entities, for making false, negative and malicious statements about the business that cause financial harm.
Examples of business disparagement are when:
- A customer publishes false and malicious statements about a business on Yelp
- A grocery store runs an advertisement that falsely states a competitor’s product does not meet government standards for quality.
- Safety activists issue a false report claiming that an oil company is violating offshore drilling standards.
A business must file an action for commercial disparagement within two years after the disparaging statement was published. (For more discussion, visit our page on the statute of limitations in California injury cases).
If a party is sued for trade libel, legal defenses are available. A few of the most common defenses are:
- An offending statement is true;
- A business did not suffer financial harm; and,
- No malice.
If a plaintiff is successful in a business/commercial disparagement action, the party may be entitled to recover compensatory damages for such losses as:
- Lost earnings and profits;
- Harm to reputation;
- Decreased business traffic; and/or,
- Adverse employment consequences
To help you better understand the claim for business disparagement, our California personal injury lawyers discuss the following:
- 1. Elements of a Business Disparagement Claim
- 2. Yelp & Google Reviews
- 3. Business Disparagement v Defamation
- 4. Legal Defenses
- 5. Damages
- 6. Statute of Limitations
- 7. Free Speech Issues
- 8. Related Causes of Action
“Disparagement” simply means to speak about a business in a negative or belittling way.
1. Elements of a Business Disparagement Claim
“Disparagement” simply means to speak about a business in a negative or belittling way. This means all commercial disparagement claims must have some type of belittling statement about a business.
For plaintiffs to succeed in a commercial disparagement claim, they must also prove five elements about the statement in question. The statement about a business must:
- Be untrue;
- Be communicated to someone other than the plaintiff;
- Clearly disparage the quality of a product or business by name;
- Be made with malice;
- Result in actual harm to the plaintiff.1
An untrue statement
To be actionable under California’s trade libel law, a statement about a business must first be untrue. This means it must be false.2
The tort encompasses “all false statements concerning the quality of services or product of a business…”.3
Communicated to someone other than the plaintiff
This element simply means that a statement must be communicated to a third party.4
The statement can be made either orally or in writing.5
Clearly disparaging the quality of a product or business by name
There are two distinct requirements for a plaintiff to prove this element. These are that the business or commercial entity must show that the statement:
- Specifically refers to its product or business; and,
- Clearly “derogates” that product or business.6
The first requirement about specificity mandates that a statement be made in direct criticism of a business.7
The second requirement mandates that a statement be critical or disrespectful in nature. 8 This includes statements that are misleading and made to influence potential purchasers not to buy a company’s products or services.9
Made with malice
To constitute commercial disparagement, a statement must be made with malice. This means that it must be made with either:
- Knowledge that it was false; or,
- A disregard as to whether it was true or false.10
Resulting in actual harm to the plaintiff
This final element requires a showing that the disparaging statement caused the plaintiff special damages.11
Special damages typically include:
- Loss of specific customers; and/or,
- Loss of specific sales.12
A plaintiff must show more than a general decline in its business. It must point to specific customers and transactions that it lost.13
Trade libel issues often arise when customers leave negative reviews of a business on internet sites like Yelp or Google.
2. Yelp & Google Reviews
Trade libel issues often arise when customers leave negative reviews of a business on internet sites like Yelp or Google. The 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 that made the review.
As to the first issue, the California Supreme Court has very recently stated 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.14
As to the second issue, 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. These are:
- It’s difficult to identify critical customers leaving the reviews; and,
- The reviewers may have insufficient assets to compensate a business.
Given these difficulties, it’s often best for businesses to provide responses to critical comments posted on such sites as Yelp or Google.
3. Business disparagement in California v. Defamation
The cause of action for business disparagement is similar to California’s law on defamation.
There is a key distinction, however, between the two actions. While defamation involves a person’s reputation, trade libel protects a company’s financial reputation. A financial reputation is at stake since commercial disparagement relates to a company’s goods or services.15
4. Legal Defenses
A party can raise a legal defense if a business disparagement claim is filed against them. The most common defenses include:
- The offending statement is true
- The offending statement is an opinion or joke
- No malice on the part of the defendant
- The business suffered no actual damages
- The offending statement was never made to a third party
- The defendant didn’t make the statement
- The statement is privileged
As to the latter, privileged statements are typically those contained within court records or judicial proceedings.
5. Damages
If successful in a trade libel action, the plaintiff is entitled to recover damages. More specifically, the plaintiff may be able to recover compensatory damages for such losses as:
- Lost earnings and profits;
- Loss of reputation;
- Decreased business traffic; and/or,
- Adverse employment consequences
Depending on the facts of the case, the plaintiff may also be entitled to punitive damages. Courts impose these to “punish” the defendant or its wrongdoing.
6. Statute of Limitations
In California, a lawsuit for business/commercial disparagement must be commenced within two years.16
The two-year period (the “limitations period” or “statute of limitations”) starts running when the plaintiff knows – or, in the exercise of reasonable diligence, should have known – that the disparaging statement was published.17
The United States Supreme Court has long held that there is “no constitutional value in false statements of fact.”
7. Free Speech Issues
A claim for trade libel appears to restrict a person’s right to free speech. Granted, while we enjoy this right, it’s not absolute. The United States Supreme Court, in a long line of cases, has placed limitations on certain speech and expressions.
Further, the United States Supreme Court has long held that there is “no constitutional value in false statements of fact.”
8. Related Causes of Action
There are four laws that are related to trade libel actions. These are:
- Defamation;
- Public disclosure of private fact;
- False light; and,
- Criminal invasion of privacy.
Defamation
Defamation in California consists of false statements that harm another’s reputation. If the statements are verbal they are called “slander.” If made in writing, they are known as “libel.”
Whether a plaintiff can successfully sue under California’s defamation laws often depends on whether the plaintiff is
- a public figure,
- a business or
- a private citizen.
Private citizens have greater protection from defamation than people who are in the public eye.
In either case, however, defamation involves:
- An untrue statement,
- That was damaging to the plaintiff’s reputation,
- Made to someone other than the plaintiff (“published”), and
- With knowledge of the statement’s falsity or failure to use reasonable care to ascertain its truth.
Public disclosure of private fact
Under California law, a “public disclosure of private fact” occurs when a person publicly discloses private and embarrassing facts about another that are not of legitimate public concern.
There are five elements to support a claim for public disclosure of private facts. These are:
- There is a public disclosure;
- That concerns private facts;
- The disclosure is one that would offend the average person;
- The disclosure was not of legitimate public concern; and,
- The defendant published private facts with reckless disregard for their truth or falsity.18
False light
California’s “false light” privacy law is similar to defamation.
It creates a right to sue when someone knowingly or recklessly creates publicity about another person in a way that unreasonably places the other person in a false light.
More specifically, there are three elements that must be proven in a successful lawsuit for false light. These are:
- The defendant made a public disclosure;
- The disclosure placed the plaintiff in a false light; and,
- An average person would consider the false light offensive.19
In some cases, the plaintiff might also have to prove that the defendant acted with malice.20
Criminal invasion of privacy
Penal Code 647(j) PC is California’s criminal “invasion of privacy” law. PC 647(j) makes it a misdemeanor to violate someone’s privacy in any of three specific ways:
- Using a device such as a telescope or binoculars to invade a person’s privacy;
- Secretly photographing or recording a person’s body under or through his or her clothing for the purpose of sexual arousal or gratification; or
- Secretly recording or photographing someone in a private room in order to view that person’s body or undergarments
A person found guilty of violating PC 647(j) is charged with a misdemeanor. A misdemeanor is punishable by:
- Up to six (6) months in county jail, and/or
- A fine of up to $1,000.21
- CACI 1731. Trade Libel; Hartford Casualty Insurance v. Swift Distribution, Inc. (2014) 59 Cal.4th 277.
- City of Costa Mesa v. D’Alessio Investments, LLC (2013) 214 Cal. App. 4th 358.
- See same.
- Polygram Records, Inc. v. Superior Court (1985) 170 Cal. App. 3d 543.
- See same.
- Hartford Casualty Ins. Co. v. Swift Distribution, Inc. (2014) 59 Cal. 4th 277.
- See same.
- See same; Nichols v. Great American Ins. Companies (1985) 169 Cal. App. 3d 766.
- Atlantic Mutual Ins. Co v. J. Lamb, Inc. (2002) 100 Cal. App. 4th 1017.
- J.M. Manufacturing Co., Inc. v. Phillips & Cohen LLP (2016) 247 Cal. App. 4th 87.
- See Hartford above.
- Erlich v. Etner (1964) 224 Cal. App. 2d 69.
- See same.
- The ruling was made by the California Supreme Court on July 2, 2018. See Los Angeles Times article. The appellate court decision being reviewed was Hassell v. Bird (2016) 247 Cal. App. 4th 1336.
- Shores v. Chip Steak Co. (1955) 130 Cal. App. 2d 627.
- Guess, Inc. v. Superior Court (1986) 176 Cal. App. 3d 473.
- See same.
- Shulman v. Group W. Prods, Inc., 74 Cal. Rptr. 2d 843. See also Briscoe v. Reader’s Digest Ass’n, 4 Cal. 3d 529 (1971), overruled on other grounds by Gates v. Discovery Communications, Inc., 101 P.3d 552 (Cal. 2004).
- Gill v. Curtis Publishing Co., 38 Cal. 2d 273.
- Selleck v. Globe Int’l, Inc., 166 Cal. App. 3d 1123.
- Penal Code 647 PC. See also Penal Code 19:
Except in cases where a different punishment is prescribed by any law of this state, every offense declared to be a misdemeanor is punishable by imprisonment in the county jail not exceeding six months, or by fine not exceeding one thousand dollars ($1,000), or by both.