Business Disparagement and Defamation

Common law defamation consists of either (i) a communication that harms the reputation of another by lowering him or her in the community of opinion, or (ii) a communication that deters others from associating with or becoming otherwise involved with the person. Both libel and slander fit within the common law definition of defamation. Libel involves written communication; slander involves oral communication.

Business disparagement, like libel and slander, is a species of the tort of “injurious falsehood.” Both defamation and business disparagement involve the imposition of liability for injury sustained through publications to third parties of a false statement affecting plaintiff. However, the two torts protect different interests. The action for defamation is to protect the personal reputation of the injured party, whereas the action for injurious falsehood or business disparagement is to protect the economic interest of the injured party against pecuniary loss. Significantly, an injured party may sue for both personal defamation and business disparagement in the same suit so long as he avoids duplication of damages.

Some courts have established the elements of a claim for business disparagement as (i) publication by the defendant of the disparaging words; (ii) falsity of the statement; (iii) malice; (iv) lack of privilege; and (v) special damages. One state supreme court has held that “communication must play a substantial part in inducing others not to deal with plaintiff with the result that special damage in the form of loss of trade or other dealings, is established, for plaintiff to have a cause of action for business disparagement.” Gulf Atlantic Life Ins. Co. v. Hurlbut, 696 S.W.2d 83, 96 (Tex. App.-Dallas 1985), rev’d on other grounds, Hurlbut v. Gulf Atlantic Life Ins. Co., 749 S.W.2d 762 (1988). Thus, proof of special damages is an essential part of the plaintiff’s cause of action for business disparagement. The requirement goes to the cause of action itself and requires that plaintiff establish pecuniary loss has been realized or liquidated as in the case of specific lost sales. Therefore, unlike defamation, which is actionable without proof of special damages in certain cases, business disparagement requires proof of a specific economic loss. Additionally, while damages to reputation or consequential mental distress is recoverable in a slander action, such damages are not recoverable in a business disparagement suit. Thus, the kinds of damages sought are significant to the determination of the cause of action that is applicable.