Don't Get Personal — Avoiding Trade Libel

By Thomas A. Skornia

When presenting a seminar presentation on the "Legal Aspects of the of Product Marketing," I always include a brief section on trade libel as a caution against a too free-wheeling style in sales pitches. My usual example, from 30 years ago now, is the Applied Materials salesman chatting with a prospect at the then notorious Wagon Wheel in Mountain View. In the course of the conversation, the salesman claimed that Applied Materials' then arch rival, Hugle Industries, was in serious financial trouble and was rumored to be heading for bankruptcy. Unbeknownst to salesman or prospect, standing behind them and overhearing them was the founder of Applied Materials' rival, William Bell Hugle. That was a Friday evening. On Monday morning, a $1,000,000 trade libel suit by Hugle Industries arrived at Applied Materials' front door.

After a lot of lawyerly skirmishing, the case was dismissed with Applied Materials paying some legal expenses of Hugle Industries, a pretty unremarkable event. Had it gone to trial, the stakes were pretty large. If the Applied Materials salesman hadn't had good reason to believe the truth of his statement, a large judgement could have resulted. The libel was not merely of Hugle Industries products, where more latitude is allowed for "salesman's puffing", but of Hugle Industries business and financial reputation, where the rules are stricter.

Court Ruling

On the product side, the Fourth District Court of Appeal, Division One, in San Diego, California, recently provided further comfort to salesmen, who in the course of a pitch, disparage the competitions' products (but not their reputations). In the context of allegedly false statements about product, the court ruled that a plaintiff must demonstrate the highest degree of culpability, that is, the defendant's actual knowledge of falsity or actual serious doubts as to the truth of his or her statements. This standard, the court ruled, was based on the distinction at common law that has always given the owner or marketer of a product very limited rights against the publisher of statements that disparage the product. The public has always had a well recognized interest in knowing about the quality and content of consumer goods.

You Have Latitude . . . But, Don't Get Personal

This is clearly not a license to lie about the competitions' products, but does provide pretty broad latitude for expressions of opinion, albeit only lightly supported by a factual basis. But don't get personal. That eliminates some strong defenses and exposes the speaker and his or her company to potentially large liability.