REVIEW OF TRADE LIBEL, DISPARAGEMENT, DEFAMATION AND STATUTORY
REMEDIES FOR NEGATIVE CONCLUSIONS IN CONSULTANT'S REPORT WHICH
INTERFERES WITH FUTURE BUSINESS EXPECTANCY

Linda K. Williams

Generally, corporations, partnerships, trade associations, or other business associations may sue as parties in a defamation action. Corporate plaintiffs are treated similarly to individual plaintiffs in a defamation action in that a corporation, like an individual, can have a reputation for adhering to the moral standards of the community in which it sells its products. The Restatement view is that a corporation or other business entity can only bring a defamation action for a defamatory statement that is likely to or does affect its profits. Oregon business plaintiffs have successfully sued for defamation and the law appears settled in Oregon.

The tort of disparagement of goods or services, or "trade libel" as it is often called, protects property rights. It is different from the tort of defamation, which protects reputation. Confusion between these related, but distinct, torts has led to inadequate treatment of disparagement actions. More recently, however, the tort of disparagement has received greater attention as a distinct cause of action.

As a claim concerned with protecting a plaintiff's property rights, disparagement is aligned with claims for unfair competition, interference with contract and business relations, and other torts protecting against business injuries. As stated by one court: "[c]laims of trade libel and product disparagement protect economic relationships and fair competition. They are akin to private claims under the antitrust laws and other forms of trade regulation."

The tort of disparagement of goods or services is defined as a false and disparaging statement of the quality of the plaintiffs goods or services, which results in pecuniary damage to the plaintiff. It has been variously termed "trade libel," "slander of goods," "injurious falsehood," and "disparagement." In Systems Operations, Inc. v. Scientific Games Development Corp., the court explained that the tort is "concerned with interests in property and should be called `disparagement' to avoid confusion with defamation (libel and slander) which concerns interests of personality." In a few recent cases, disparagement was defined as a false statement which disparages the plaintiffs goods and services and which the defendant should recognize as likely to cause pecuniary damage to the plaintiff. See Redco Corp. v. C.B.S. Inc., 758 F.2d 970, 971 (3d Cir. 1985), cert. denied, 474 U.S. 843 (1985), applying Pennsylvania law; General Prods. Co. v. Meredith Corp., 526 F Supp. 546, 553 (E.D. Va. 1981), applying Virginia law.

Alleged disparaging statements have been grouped into three general categories by the courts:

1. Statements which contain imputations concerning the plaintiff's character and are also disparaging of his product or services;
   
   
2. Statements which are directed only at the product or services, for which special damages must be proved; and
   
   
3. Statements which compare one product to another, for which no recovery can be had.

Business defamation, which frequently arises out of the same set of transactions or events as a claim for product disparagement, is really distinct tort that is a species of the broader, general tort of defamation. Business defamation involves the libel or slander of an entity's reputation in its trade or business. This cause of action protects the entity's interests of personality.

Statements defamatory in the commercial context fall into two categories:

1. those that impute to the plaintiff a general lack of such ability or integrity as is peculiarly required by his office or other occupation; and
   
   
2. those that impute something with respect to the plaintiff's office, profession, trade, or business that has a natural tendency to lessen its profits.

A corporation, partnership, or other business association is an entity with a business reputation and is, therefore, capable of being defamed. The courts allow such an organization to bring an action for business defamation. See National Refining Co. v. Benzo Gas Motor Fuel Co., 20 F.2d 763 (8th Cir. 1927), cert. denied, 275 U.S. 570 (1927); General Prods. Co. v. Meredith Corp., 526 F. Supp. 546, 549-50 (E.D. Va. 1981), applying Virginia law. Statements that disparage a person's or entity's goods and/or services but do not impute a lack of ability or integrity to that person or entity cannot be the basis of a defamation claim because the tort of defamation protects only the interest in reputation. The separate tort of product disparagement or trade libel protects any property interest affected by damaging statements about products or services.

The tort of defamation consists of the publication of a defamatory statement concerning another to a third person. The wrong of defamation subsumes two historical torts: libel and slander. Libel is the tort applicable to a defamatory statement that is written, and slander is the tort when the defamatory statement is oral. For example, the statements made by the "sources" to the consultant are slanderous, but the written report is libelous. The distinction made a difference before broadcasting, when the written word was deemed more powerfully damaging, and so those defamed by oral statements were put to a higher burden of proving damages, but the distinction makes little sense today.

The survival of the distinction often makes a difference in the required proof of damages, but in this case, even that distinction is not particularly relevant, since slanders which impute that the plaintiff is not fit to carry on a business or occupation are deemed slanderous per se and treated the same as written libels for purposes of proof.

In the traditional view, in order to support a claim for defamation, the allegedly defamatory statement must be:

1. understood as defamatory by the audience (or proven to be so understood);
   
   
2. false;
   
   
3. "of or concerning" the plaintiff;
   
   
4. one of fact (or be an opinion which implies existence of fact in Oregon);
   
   
5. one that reflects on the plaintiff's conduct or abilities in general; and
   
   
6. one that would be considered defamatory by an important and respectable portion of the community.
   
   
7. nominal damages;
   
   
8. special damages (not required in cases of slander or libel per se);
   
   
9. presumed or general damages; and/or
   
   
10. punitive damages, if allowed (Oregon does not allow punitive damages for defamation).

In Oregon an action for disparagement must show a causal link between business damages--the proven losses--and the disparaging statement, but in actions for defamation, the harm to reputation is "presumed" in cases of business reputation defamation. However, Oregon does not allow the imposition of punitive damages for speech-related torts because of the Oregon Supreme Court's interpretation of the Oregon Constitution's Bill of Rights, so plaintiff would have to put on some evidence to support general damages beyond the presumed or nominal damages. Attorney fees are not recoverable to the prevailing party in a tort action.

Truth of the statements is an absolute defense in a defamation action. In most cases, this defense must be proved by the defendant. The common law privileges are generally regarded as the most important defenses to a defamation action. A few such privileges provide absolute immunity from a defamation claim but are not relevant in these facts. Other privileges are only conditional, including: the privilege of communications between interested persons; communications needed to protect legitimate interests; the credit reporting privilege (or similar reporting privilege). Fact situations applying these privileges would include communications compelled by law or regulation such as reports to state agencies about unemployment or worker injury claims, or communications with co-employees about the reasons for termination of an worker.

To some extent, the bad "reference" supplied by the consultant is similar to a defamatory statement made by a former employer about an employe. In the regular course of business, there are many situations in which an employee may be the subject of allegedly defamatory statements such as employee reviews, termination of employees, referrals to prospective employers, and reports made to such government agencies as unemployment administrations.

All of the defenses available in a defamation action are generally available in a defamation action filed in the employment context. A claim of absolute privilege in the employment context is typically based upon the defendant's official position or role at the time the allegedly defamatory statement occurred. A qualified privilege applying to communications made between parties having a mutual interest or the privilege applying to communications made to protect the interest of a party is frequently applicable to defamation actions arising in the employment context. Consent of a plaintiff employee to the publication of defamatory matter concerning him is a complete defense to an action for defamation in the employment context. Following that analogy, plaintiff may have consented to remarks made by the references it supplied, but it certainly did not "consent" to anonymous slanders by intermeddlers.

In many employment situations, the defendant will be able to point to some legitimate interest that the defendant claims was the reason for making the alleged defamatory statement. For example, Oregon recognizes "former employer" privilege:

The law clearly recognizes that a former employer has a qualified privilege to make defamatory communications about the character or conduct of his employee to present or prospective employers. See., e.g. 3 Restatement of Torts, st 247, § 595, and Comment (h) at 252-53; W. Prosser, supra at 788, § 115.

Walsh v. Consolidated Freightways, supra, at 89. The truthfulness of the underlying defamations would be a complete defense to as repetition ("publication") of the libelous material. Under the facts it is likely that the consultant could raise another qualified privilege that it was an agent the entity requesting the report and acting on a matter of mutual interest when it communicated with it. Under such a privileged, the agent might not be responsible for communicating false o faulty information. Such a qualified privilege, if the court allows defendant to plead it, places the burden upon the business plaintiff to show that the claimed privilege was abused through misuse or reckless conduct. Thus, if the summary inaccurately paraphrases some underlying interviews then it may well be a "reckless" falsehood which would destroy any qualified privilege that the agent who collected the interview data may have to communicate with the principal. If the underlying sources each do say the negative statements in each of the 5 categories, then the publishers of the report may still have abused their privilege to report information if it was reckless and indifferent in determining the truth or falsity of the statements.

Assuming that some sort of mutual interest privilege to disparage the plaintiff were alleged in defense, the defense is only partial at best, as the Oregon Supreme Court noted in discussing the common or legitimate interest privilege:

However, this kind of [qualified] privilege is not absolute, and if the privilege is abused the defendant will still be liable to the plaintiff. * * *.

As Prosser states:

The condition attached to all such qualified privileges is that they must be exercised in a reasonable manner and for a proper purpose. The immunity is forfeited if the defendant steps outside of the scope of the privilege, or abuses the occasion. * * *.

* * * * *.

* * * Furthermore, the qualified privilege will be lost if the defendant publishes the defamation in the wrong state of mind. The word 'malice,' which has plagued the law of defamation from the beginning, has been much used in this connection, and it frequently is said that the privilege is forfeited if the publication is 'malicious.' * * * Perhaps the statement which best fits the decided cases is that the court will look to the primary motive or purpose by which the defendant apparently is inspired. Discarding 'malice' as a meaningless and quite unsatisfactory term, it appears that the privilege is lost if the publication is not made primarily for the purpose of furthering the interest which is entitled to protection.

Finally, since there is no social advantage in the publication of a deliberate lie, the privilege is lost if the defendant does not believe what he says. Many courts have gone further, and have said that it is lost if the defamer does not have reasonable grounds, or 'probable cause' to believe it to be true, while others have insisted that good faith, no matter how unreasonable the basis, is all that is required. * * * Probably the best statement of the rule is that the defendant is required to act as a reasonable man under the circumstances, with due regard to the strength of his belief, the grounds that he has to support it, and the importance of conveying the information." Id. at 792-96. (Emphasis supplied; footnotes omitted.)

See also 3 Restatement of Torts, supra § 600 et seq.

The burden of proving an abuse of the qualified privilege, however, rests upon the plaintiff. W. Prosser, supra at 796, § 115,

Walsh v. Consolidated Freightways, supra.

The unnamed sources (and possibly their corporate employers) may be each liable for whatever defamatory statements they did make, even if such statements were framed as "opinions." Although there is conflict in other jurisdictions about defamatory expressions of opinion, in Oregon, a statement of opinion which implies underlying facts which are not true to form the basis of the opinion is as libelous as a false statement of fact. For example, it is the settled law in Oregon that "a statement may still, as a matter of law, be capable of a defamatory meaning even if the maker prefaces it with the words `in my opinion.' Lowe v. Brown, 114 Or 426, 233 P 272, 235 P 395 (1925) * * *." Bock v. Zittenfield, 66 Or App 97, 101 672 P2D 1237 (1983), pet for rev den'd, 296 Or 486 (1984).

To say, `There is reason to believe," or, `There is a rumor,' or, `If a report be true,' a certain fact occurred, is equivalent to an allegation that such fact occurred." Townshend on Slander and Libel (4th ed), p 153.

Lowe v. Brown, supra, 114 Or at 431 (holding that the statement, "I believe that W.L. Lowe is a thief" is actionable slander).

Although the "sources" may also claim certain qualified privileges attach to their communications with the consultant who collected information, (the nature of these conditional privileges is discussed in come detail below) it appears that their claims under any conditional privilege recognized in Oregon would be weak, although a former employer, may have the strongest claims of privilege. It is unlikely that any privileges can prevail if the statements were made and falsely slandered the plaintiff in the categories mentioned. The Oregon Supreme Court has found no privilege to protect faceless rumor: "there is no social advantage in the publication of a deliberate lie * * *." Walsh v. Consolidated Freightways, 278 Or 347, 355, 563 P2d 1205 (1977).

The consultant might be liable for statutory damages, punitive damages and plaintiff's attorneys fees under a little used provision of Oregon's Unfair Trade Practices Act, ORS 646.608:

(1)   A person engages in an unlawful practice when in the course of the person's business, vocation or occupation the person does any of the following:
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(h)   Disparages the real estate, goods, services, property or business of a customer or another by false or misleading representations of fact.

There appear to be no published cases under this unfair competition section of the statute. The UTPA generally protects consumers and applies to the sales of real estate, and products for home consumption. ORS 646.608(1)(h) however, is broader and applies to any business which disparages the business of another, showing a legislative intent to reduce unfair competition. This false disparagement section is aimed at unfair competition rather than consumer protection. Since there are no reported cases I have not tried to analyze for this memorandum whether the common law privileges familiar in defamation actions would apply at all in UTPA cases. This would require some research into how other states have interpreted their uniform unfair business practices acts.

In distinction to the common law defamation cases where the Oregon Supreme Court has found punitive damages prohibited UTPA specifically allows the imposition of punitive damages. In other statutory sections of the UTPA, the court has upheld the imposition of punitives damages against free speech defenses. The Oregon Supreme Court has also allowed the award of punitive damages in malicious interference with contract cases, perhaps signaling a willingness to allow punitives in business tort contexts where socially unacceptable conduct and not protected speech is the weapon the defendant chooses.

Under the Oregon UTPA statute, the loss only need to be "ascertainable," which the Court has interpreted to mean capable of ascertainment, but you can ask for the statutory $200.00 and punitives avoiding any detailed proof the amount of the damage. In such a situation plaintiff's overall finances should not be an issue of discovery, although it is difficult to limit discovery if it may lead to discoverable evidence. Under the general principles of defamation law however, plaintiff has been slandered and libeled "per se" which means that the defamatory statements are injurious on their face and are about business and honesty of character (integrity). Therefore, general damages are "presumed," and plaintiff need not put on much evidence about its losses. Generally, the defendant is free to try to show that plaintiff's reputation was bad to begin with to refute the notion that it is damaged by the slanderous remarks. This offer of proof is generally limited however.

In Shirley v. Freunscht, 303 Or 234, 735 P2d 600 (1987), plaintiff brought an action for defamation based on Freunscht's statements. Defendants relied on the defenses of truth and qualified privilege. In addition, they sought to lessen damages by demonstrating that plaintiff had a bad business reputation prior to the alleged defamatory statements. To that end, defendants called two witnesses who testified on direct examination that, in their opinion, plaintiff's business character was poor. When asked for the bases for their opinions, both witnesses related, over plaintiff's objection, specific instances of business misconduct, none of which was relevant to defendants' truth defense because none was related to the charges in Freunscht's statements. The Oregon Supreme Court reversed the trial court and ordered a new trial. The plaintiff's character was not at issue and the evidence of business misconduct had improperly been admitted.

As noted in McCormick, character and reputation are not synonymous. Character is internal; it is that set of personality traits and moral values actually possessed by an individual. See State v. Johns, 301 Or 535, 548, 725 P2d 312 (1986). Reputation, however, is external. It is the community's perception of an individual's character. Character is what a person is, reputation is what the person's neighbors think he or she is. See 1A Wigmore, Evidence 1147-48, § 52 (Tillers rev 1983); 22 Wright & Graham, Federal Practice and Procedure: Evidence 353, § 5233 (1978). Plaintiff's pleadings in this case establish that he sought damages for harm to his reputation, not his character. Nothing in the answer of either defendant transformed the case into one in which it fairly could be said that plaintiff's character was in issue. The Court of Appeals erred in concluding that plaintiff invited inquiry into his business character by seeking damages for harm to his business reputation.

The gravamen of the tort of defamation is the injury to the plaintiff's reputation. See, e.g., Lowe v. Brown, 114 Or 426, 433-34, 233 P 272, 235 P 395 (1925); State v. Mason, 26 Or 273, 277-78, 38 P 130 (1894); see also Prosser & Keeton, The Law of Torts 771, § 111 (5th ed 1984). Whether plaintiff actually deserved his reputation is not at issue, and defendants are not entitled to introduce evidence on that point. See Prosser & Keeton, supra, 847 n 43, § 116A; 22 Wright & Graham, supra, 369, §5235. All that they are entitled to show is the status of plaintiff's business reputation prior to Freunscht's statements.

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1.    Several cases have addressed the issue of whether a corporation or other business entity can sue for defamation. It is generally held that corporate plaintiffs are treated similarly to individual plaintiffs in defamation actions.

2.   (1) the judicial proceedings privilege;
    (2) the fair reporting privilege;
    (3) fair comment on matters of public concern privilege.

3.   When the defendant in a defamation action is a corporation, an issue may arise with respect to the extent to which the corporation is liable for the statements of its spokespersons. Generally, the allocation of liability between a corporation and its spokesperson depends on two factors:

(1)   whether the spokesperson was speaking solely on his or her own behalf, or was also speaking on behalf of the corporation; and

(2)   the degree of damage likely to result from the fact that the statement was made by an individual as opposed to the corporation.

4.   ORS 646.638 Civil action by private party; damages; attorney fees; effect of prior injunction; time for commencing action; counterclaim.

(1)   Except as provided in subsection (7) of this section, any person who suffers any ascertainable loss of money or property, real or personal, as a result of willful use or employment by another person of a method, act or practice declared unlawful by ORS 646.608, may bring an individual action in an appropriate court to recover actual damages or $200, whichever is greater. The court or the jury, as the case may be, may award punitive damages and the court may provide such equitable relief as it deems necessary or proper.
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(3)   In any action brought by a person under this section, the court may award, in addition to the relief provided in this section, reasonable attorney fees at trial and on appeal and costs. If the defendant prevails, the court may award reasonable attorney fees at trial and on appeal and costs if it finds the action to be frivolous.

5.     In Denson v. Ron Tonkin Gran Turismo, Inc, 279 Or 85, 89 n.4, 566 P2d 1177 (1977), the Court, in banc, noted:

The language of ORS 646.608(1)(a)-(j) (part of the list of practices declared unlawful) is largely borrowed from the Uniform Deceptive Trade Practices Act. See 7 ULA 333 et seq., § 2. The Uniform Act isolates as illegal specific actions of trade symbol or dress infringement, deceptive advertising and false disparagement. Its emphasis is largely in identifying business conduct which is in unfair competition with other businesses. See Dole, The Uniform Deceptive Trade Practices Act: Another Step Toward a National Law of Unfair Trade Practices, 51 Minn L Rev 1005 (1967). See also Young v. Joyce, 351 A2d 857 (Del Supr 1975), and Mars, Inc. v. Curtiss Candy Co., 8 Ill App3d 338, 290 NE2d 701 (1972).

On the other hand, the legislative history of the Oregon Unlawful Trade Practices Act supports the view that it is to be interpreted liberally as a protection to consumers. House Bill 3037, the final version of the legislation, combined several bills introduced for consumer protection. Senate Bill 50 (one of the consumer protection bills introduced in the 1971 legislative session) contained much of the language eventually enacted as ORS 646.608(1) (a)-(j). As originally drafted, the bill described the proscribed trade practices as "unfair methods of competition." However, this language was deleted from the final version. The minutes of the Senate Consumer Affairs Committee for February 17, 1971, read:

Senator Willner then proceeded to explain his amendments to the committee, giving the rationale behind the amendments as he progressed.
In section 3, he pointed out, the language 'unfair methods of competition' had been deleted, since the bill seeks to protect consumers rather than businesses."

House Bill 3037 contained other "consumer protection" measures (abolition of holder in due course doctrine for consumer transactions; anti-deficiency judgment statute; regulation of home solicitation sales). See Or Laws, ch 744 (1971). Because the policy underpinnings of our statute (protection of consumers) differ somewhat from the Uniform Act (protection of businesses), interpretations of the Uniform Act are of limited value in discerning the legislative intent behind the Oregon Act.

6.   In Wheeler v. Green, 286 Or 99, 118, 593 P2d 777 (1979), the Oregon Supreme Court held that the Oregon Constitution forbids punitive damage awards in defamation cases:

We are convinced by these considerations that a proper application of [Oregon Constitution] Article I, § 8, prohibits the award of punitive damages in defamation cases, unless some other constitutional provision requires that they be allowed. As we have shown, Article I, § 10, the other provision with a direct application to defamation actions, does not. See Davidson v. Rogers (concurring opinion by Linde, J.), 281 Or 219, 222, 574 P2d 624 (1978).

We hold, then, that the Oregon Constitution prohibits the award of punitive damages in this case * * *.