The Emerging Prevalence of Commercial Disparagement

Posted: May 16, 2018

Commercial disparagement isn’t necessarily a fresh concept, but the pace of new commercial disparagement litigation (and potential cases) is recently quickening. In a world in which social media gives customer and companies the opportunity to say anything about one another instantly, there is a heightened danger of violating the commercial disparagement tort.

Defining Commercial Disparagement

Also called business disparagement, commercial disparagement is an event in which a party makes derogatory statements about a business entity, which can be a business or person’s title to his or her property, with the intent to injure the success of that business or property. Its design covers a range of statements, including those that accuse the business of being dishonest or incompetent.

The tort helps prevent businesses from competing against one another using unfair business practices as a tactic. However, even customers can be held liable for what they say about a business if it financially affects the company.

A company can bring a case against a customer or competing company when a published statement is:

  • False
  • Intended or believed to be intended to cause financial loss
  • The cause of financial loss
  • Made by the defendant with knowledge that it is false or with reckless disregard as to whether the statement is true or false.

It is a challenge, however, for a plaintiff to prove that a statement has directly caused financial harm to a business. There must be proof that alleged acts of disparagement have caused a decrease in customer availability, willingness to purchase, and acquisition of new customers.

Evolution of Commercial Disparagement through Precedent

Pennsylvania-based commercial disparagement litigation dating as far back as 1939 has helped clear ambiguity about what qualifies as commercial disparagement.

  • Diamond v. Krasnow, 136 Pa.Super. 68, 7 A.2d 65 (1939) – Established that blacklisting a delinquent debtor and circulating that blacklist to other lenders renders creditors potentially liable for commercial disparagement.
  • Dougherty v. Boyertown Times, 377 Pa.Super. 462, 547 A.2d 778 (1988) – Established that an accusation that a business charges excessive fees, when such an accusation is false, implies unethical conduct and is actionable under the commercial disparagement tort.
  • In re Valley Forge Plaza Associates, 113 B.R. 892 (E.D.Pa. Bkrtcy. Ct. 1990) – Established that falsely imputing insolvency to businesses and merchants is defamatory because businesses almost universally rely on credit.

Commercial disparagement also extends to products and services of a business, as well, as was proven in Testing Systems, Inc. v. Magnaflux Corp. , 251 F. Supp. 286 (E.D.Pa. 1966). The defendant published a false report that the plaintiff’s product was only 40% as effective as the defendant’s, which was not intended as an injury to the business but as an injury to the product line. However, trade libel still applied.

In the interest of protecting the plaintiff, Hipsaver Inc. v. Kiel, 464 Mass. 517 (2013) established that plaintiffs could meet the damages element of the tort through an exception that applies to widespread dissemination of a statement, which causes difficulties for plaintiffs seeking to prove that they lost customers to a disparaging statement. In the digital world, such a decision also protects customers from having to provide information or testify in such cases, or become part of a search for proof among anonymous internet users.

Disparagement and Digital Media

Shot of a businesswoman using technology at workIn 2014, T-Mobile came dangerously close to violating the commercial disparagement tort with an ad campaign that took an aggressive approach to competition. Advertisers published fake quotes from AT&T president and CEO, Ralph de la Vega, and printed and posted ads featuring insults directed toward AT&T.

The disclaimer printed at the bottom of their advertisements may have saved them, but the action speaks to the ubiquity of the always-on digital world. Social media platform companies receive most of their revenue from advertisement, and businesses participate voraciously in social media marketing on those platforms.

Considering the personal nature of Instagram posts, Twitter tweets, and Facebook status updates (even for businesses), there is a higher risk for social media managers and marketing teams to accidentally back into an actionable commercial disparagement litigation.

That doesn’t mean that businesses and consumers are powerless in digital media. If a statement is true and can be proven true, social policy generally bars relief in those cases.

The stage is set for a flood of commercial disparagement litigation, and we’re poised to see greater evolutions in how such cases are handled and what new precedents are set by disparagement and defamation in digital media.