Defamation of a Business – the Customer is (Not) Always Right

With the evolution of the internet and social media/networking sites in particular, more options exist than ever when it comes to obtaining information about a prospective business partner, contractor, vendor, etc.  How your business monitors information published about it can mean the difference between a sale or new business relationship, and a failed deal.

Defamation is a tort (i.e., a form of legal injury that does not arise out of contract) that consists of the publication of false and defamatory matter to a third person that causes legal injury. In the commercial arena, one initial inquiry is whether the published statement concerns the business itself or someone affiliated with the business in his or her individual capacity. In Maryland, a company, no matter how large or small, is deemed to be a separate entity from its owners and shareholders, and the company’s rights and responsibilities are separate and distinct from those of its owners and shareholders.

Therefore, a statement that is defamatory – that is, a publication tending to injure one’s reputation, and expose him to hatred or contempt – as to stockholders, officers or employees of a business entity does not constitute defamation of the business itself unless the business can prove “special damages.” Special damages include the loss of particular customers or a general reduction of business. An aggrieved business must also be prepared to show that these special damages were the natural and direct result of the false publication.

Generally speaking, a business entity can be injured by a false publication only with respect to its credit, property or business. Companies thus do not have standing to sue for allegedly defamatory statements made about their stockholders, officers, or employees unless the words at issue are spoken or written in direct relation to the creditworthiness, property or business of the company. The converse is also true — the defamation of a company does not ordinarily create a cause of action for its shareholders or owners. In general, the publication must refer to the person being defamed

Today’s prudent consumer, in the absence of a direct referral or some other reliable source, will do his or her research on-line before ordering goods and services from a business for the first time. Readers may be familiar with such websites as e-pinions, yelp or Angie’s List, or other on-line resources that collect and publish reviews from users (or in the case of Angie’s List, from paid and registered subscribers) for the express purpose of helping customers decide where to shop or eat, whether a business delivers a high-quality product, provides good services, and so forth.

What steps can a business take when information published about it is false, and even worse, has a direct effect on its bottom line? Always start with the publisher itself (e.g., newspaper or website) and request that the information be removed, including the reasons why. Most websites and blogs that permit users and third parties to post comments will have written terms of use, the violation of which can result in removal of the offending post and suspension of the account.  However, the basis for removing harmful information must be one that is ultimately verifiable, which is not always easy to demonstrate. For example, consider a comment describing a wholly fabricated occurrence at a business that depicts the business in a very negative light, thereby increasing the risk that customers will be turned off and take their business. If the company can only respond by stating that the event never occurred, the publisher of the information might side with its user and leave the information on-line.

What then can be done if the publisher refuses to remove the defamatory content or if that content continually reappears on different websites? In general, those who provide an “interactive computer service” (such as Internet service providers, or ISPs) are immune from suit under the federal Communications and Decency Act as long as the information at issue originates with a third-party user. Under the statute, such websites are not to be treated as the publisher or speaker of any information provided by another.  The defamed company must therefore sue the author or provider of the statement, or “information content provider,” directly, which is not always as easy as it sounds.

The internet allows for anonymity, and to hold someone legally accountable for tortious conduct such as defamation, it is necessary to unearth the identity of the party responsible for the defamatory content before one can obtain judicial relief.  Maryland’s courts have balanced the First Amendment right of an individual to speak anonymously with the limitations presented by considerations of defamation, which is not a form of constitutionally protected speech. The result is a specific procedure that Maryland courts must follow when one seeks the disclosure of the identity of an anonymous internet communicant. This procedure weighs considerations of notice to the alleged defamer (and corresponding opportunity to oppose disclosure) and the First Amendment issues alluded to above against the strength of the plaintiff’s case for defamation. Therefore, a review of bad service at a restaurant on one occasion is not bound to be the kind of factual scenario that will ordinarily persuade a court to issue a subpoena to the website owner to turn over information related to the identity of the commenter.

Furthermore, oftentimes blog accounts and website user names can be created without providing verifiable personal information. This obviously can complicate the search for the identity of anonymous persons who publish false information intended to harm a business. It may be necessary for businesses to consult a forensic computer firm, private investigator or attorney if the potential damages associated with the unabated defamatory publication justify the costs associated with such investigative actions.

For more information please contact Jason C. Brino at 410-583-2400 or