Commercial Disparagement in Pennsylvania

Most of us are familiar with the concepts of slander and libel. Slander is the term generally used to describe false statements made orally which tend to damage the reputation of a person or to expose him to public ridicule, hatred and contempt. Libel is the term generally used to describe false and injurious statements made in writing. Defamation is a broader term, encompassing both libel and slander, as well as false statements disseminated over the airwaves. It is often said that a man’s good name and reputation are worth more than any money or property. Thus, the Pennsylvania Constitution places a man’s reputation in the same class with life, liberty and property.

While most of us are aware that the law provides a remedy to a person whose individual reputation has been damaged by false statements, many are not aware that Pennsylvania law likewise provides a remedy to businesses whose products or services are disparaged by the false statements of others. The tort is variously referred to as slander of goods, trade libel, unfair competition or interference with prospective business advantage, but in the more recent decisions of Pennsylvania courts it is often referred to by the broader title of “commercial disparagement.” Regardless of the particular label, a business has a legally viable claim against another for the oral or written publication of a disparaging statement concerning that business where:

  1. The statement is false;
  2. The publisher either intends the publication to cause financial loss or reasonably should recognize the publication would result in financial loss;
  3. Financial loss does in fact result; and
  4. The publisher either knows that the statement is false or acts in reckless disregard of its truth or falsity.

Pro Golf Mfg. Inc. v. Tribune Review Newspaper Co. , 809 A.2d 243 (Pa. 2002).

The tort of commercial disparagement is broad enough to cover more traditional defamation affecting an individual’s business reputation, such as a charge made in the heat of a major league baseball strike threat, that the attorney for the Major League Umpires’ Association was incompetent, dishonest and unethical. Phillips v. Selig , 2001 WL 18075951 (Pa.Com.Pl. 2001). Similarly, an accusation that a business is charging excessive fees, if false, is generally actionable on the basis that such an accusation imputes unethical conduct, and therefore tends to disparage a person in his trade or profession. Dougherty v. Boyertown Times , 377 Pa.Super. 462, 547 A.2d 778 (1988). Likewise, to falsely impute insolvency to merchants, traders or others in business is defamatory per se, because virtually every business is dependent upon credit. See In re Valley Forge Plaza Associates , 113 B.R. 892 (E.D.Pa. Bkrtcy. Ct. 1990). Similarly, where a creditor refuses payment of the undisputed part of a debtor’s account and reports that debtor as delinquent as to the full amount of the disputed claim such that the debtor’s name is published in a delinquent list circulated among members of a trade association, the intentionally misleading nature of this blacklisting renders the creditor potentially liable for commercial disparagement. Diamond v. Krasnow , 136 Pa.Super. 68, 7 A.2d 65 (1939).

A business sued for commercial disparagement has a number of potential defenses. First, as is often said, truth is an absolute defense to a commercial disparagement claim under Pennsylvania law. Second, even when the statement is not true, the speaker may have either an absolute privilege or a qualified or conditional privilege against a commercial disparagement claim. Statements made in the regular course of judicial proceedings and statements made by a public officer in the performance of his duties are absolutely privileged, meaning that no liability will attach to the statement, false or not. Statements subject to a qualified privilege are privileged unless the plaintiff can establish that the defendant abused the privilege by acting with actual malice and knowledge of the falsity. Qualified or conditional privilege attaches where the defamer has made his statement in order to protect his life, his good name, his family, his property or some similar legally protectable interest, or has made the statement to public officials concerning law enforcement or legislative officials. Conditional privilege also attaches to statements made by subordinate state officials in the course of performing their duties or made by any person in the performance of a duty. Perhaps the most common instance in which a qualified or conditional privilege applies is in the context of pre-employment inquiries. Employers are conditionally privileged to comment to other employers about prospective employees. Zuschek v. Whitmoyer Laboratories, Inc. , 430 F.Supp. 1163 (E.D.Pa.1977). This conditional privilege renders the employer immune from defamation liability unless the employee shows that the comments were made with malice or bad faith. In contrast, an employer has an absolute privilege to publish defamatory matter in notices of employee termination directed solely to the employee. Yetter v. Ward Trucking Corp. , 401 Pa.Super. 467, 585 A.2d 1025 (1991). Conceptually, a “defamatory” notice directed solely to the subject employee is not defamatory at all since it is not in fact published to a third party.

The tort of commercial disparagement also extends to cases clearly not covered by simple notions of defamation. That is, commercial disparagement includes not merely false statements about the business, but also extends to false statements about the products or services of that business. For instance, when one falsely tells the customers of a business that its products infringe upon another’s patent - a statement which would tend to discourage others from purchasing that product - the owner of the business so damaged has a potentially viable claim for the trade libel variety of commercial disparagement. Stroud v. Smith , 194 Pa. 502, 45 A. 329 (1900). Just as attacks on a seller’s right to sell a product are actionable, so are attacks on the quality of that product. Thus, attacks upon the quality of a trade convention center’s property, made in order to reduce the property’s marketability, are actionable as trade libel. See In re Valley Forge Plaza Associates , 113 B.R. 892 (E.D.Pa. Bkrtcy. 1990). Similarly, the publication of a false report that the plaintiff’s product was only 40% as effective as that of the defendant gave rise to a cause of action for trade libel. Testing Systems, Inc. v. Magnaflux Corp. , 251 F. Supp. 286 (E.D.Pa. 1966).

The Pennsylvania Unfair Trade Practice and Consumer Protection Law to some degree codifies the common law prohibition on “disparaging the goods, services or business of another by false or misleading representation of fact” at 73 P.S. § 201-2 (4)(viii), though a private action under the Unfair Trade Practices Act is only available to someone who purchases or leases goods or services primarily for personal, family or household purposes (73 P.S. § 201-9.2), as where a consumer is duped into purchasing sub-par goods or services of one business by that business disparaging the superior goods or services of another.

A claim for commercial disparagement may also lie where a party publicly makes false negative comments with respect to the name of the business. A colorful example can be found in the case of Kosor v. WPXI, Inc. , 21 Media L.P. Rep. 1956 (Pa.Com.Pl. 1993). In that case, the owner of a cleaning business registered under the fictitious name of “Maids to Order” sued a Pittsburgh television station over its airing of a news feature entitled “Maid to Order”, which was advertised in conjunction with images of women dressed in sexually revealing clothing who appeared to be preparing to clean a house. While recognizing the right of a business to protect its name, the Kosor court found that the phrase “Maid to Order” was merely the turn of the more common phrase “made to order”, and therefore could not be construed as a negative comment about a specific entity which happened to use that common phrase as its identifying name. Because of commonality of the phrase, the court found that the TV station had not used the phrase with the intent to cause harm to the financial interests of plaintiffs, and the news report therefore did not amount to commercial disparagement. The Kosor case can therefore be said to highlight both the advantages and disadvantages of organizing a business with a commonly used phrase as its name.

The law of commercial disparagement in Pennsylvania is complex, leaving much room for interpretation of apparently conflicting case law. An article of this length can do no more than scratch the surface. If you have any questions, click here now to contact Wolf, Baldwin & Associates, P.C. for an initial consultation.

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