Dear Cliff/Watcher:
Please italicize, and cut and post this article to Raging Bull.
Thanks in advance.
pubs.acs.org
DON'T BAD-MOUTH YOUR COMPETITION
Even telling the truth can get you in trouble.
January 1997
CHEMTECH 1997, 27(1), 47-49.
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Copyright c 1996 by Phillip M. Perry.
Published 1997 by the American Chemical Society.
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Phillip M. Perry
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Your business is better than the competition. Your sales people are more knowledgeable. Your products are of better quality. And your advertising is more honest. You can tell all that to your customers, right? Wrong. Touting the merits of your business is one thing. Comparing your products and services with those of your competitors is something else. "You run a tremendous risk of getting hit with a libel suit whenever you disparage competitors," says Jeff Kaplan, a partner of Arkin, Schaffer & Kaplan, a New York law firm that defends companies hit by such lawsuits. "The penalties can be costly: There have been some huge libel awards totaling millions of dollars."
No matter that you feel justified in explaining the comparative quality of your deals or even in warning customers about someone's deceptive practices. However noble your intention, lawyers are ready to file suit against your business for damaging another's reputation. Call it what you want--"trade libel," "disparagement," or "slander of goods"--what you say about your competitors can hurt you.
Not my company
Think you are immune? Watch out. Your employees may be putting you in danger right now by making statements such as
"Their goods are not as complete as ours. And their service is slow." "They advertise features that simply are not available." "I've heard they've had trouble paying their vendors."
Be careful: Your employees can land you on the losing end of a costly lawsuit.
"The first cracks in the dam occur when you start to think it can't happen to you because you are a good company hiring good people," says W. Michael Hoffman, executive director of the Center for Business Ethics, Bentley College (Waltham, MA). "Those little cracks start floods of litigation when employees step over the line."
Why do employees disparage competitors? Often it's to land a sale, says Hoffman. On the other hand, broadcasting bad news about competitors, stretching the truth, or even telling outright lies can stem from a sense of loyalty. "Many employees bad-mouth competitors not for personal gain, but because they think it is in the best interests of the company they work for," says Hoffman. "It's not. It puts the company in jeopardy."
A variety of laws protect companies from disparagement. The big daddy is the federal Lanham Act, which allows lawsuits for false representation of competitors' services or products. An important excerpt from the act reads, "Any person who ... in connection with any goods or services ... uses in commerce any ... false or misleading description of fact, which ... in commercial advertising or promotion, misrepresents the nature, characteristics, or qualities ... of his or her or another person's goods, services or commercial activities ... shall be liable in a civil action by any person who believes that he or she is likely to be damaged by such act."
State laws vary substantially, but many states have adopted the Uniform Deceptive Trade Practices Act, which reinforces the principles of the Lanham Act. The result is that you can get hit by the Federal Trade Commission or equivalent state agencies.
The myths about libel
What can you do to protect yourself? Let's start by exploring some myths about libel law as it applies to business. Then I'll discuss what protective steps you can take.
Myth Number 1: You are safe as long as your statements are true. Do you think you are safe if your statements can be shown to be true? Think again. "Your competitor may have a cause for action if what you say is false or misleading," says Paul Batista, a New York attorney who specializes in defending companies. And beware: It's much easier for the plaintiff to show that your statements are misleading than it is to show that they are false. "Juries often conclude that a statement is misleading, even if evidence has been presented that it is true," says Batista.
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Before you say a word ...
Is the statement false? Is the statement misleading? Is the statement likely to be exaggerated when reported to the competitor? Does it compare a competitor's products or service unfavorably with your own? Does it make assertions of specific unfavorable facts about a competitor's business?
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The fact is, truth is often in the eye of the beholder. Suppose a consumer agency caught your competitor misrepresenting a product or service. One of your employees starts gossiping that so-and-so mislabels products to mislead customers. Even if you can prove that the competitor did this a few times, a court may well decide that your statements are misleading about the competitor's business in general and subject you to heavy penalties.
Your statement may not be untruthful--and not misleading--but are you willing to spend the money required to defend yourself in court if your competitor sues? "Court cases are expensive, even if you are in the right," says Felix Kent, senior partner at Hall, Dickler, Kent, Friedman & Wood, New York.
Suppose you say something to the effect that, "We have a wonderful program--and our competitor's program is not quite as good as ours." Batista comments, "The other guy may well say you have made a false or misleading statement under the Lanham Act and send a threatening letter from his lawyer. Even if you believe the truth of what you have said, it will cost you many thousands of dollars to defend it in court. A six-figure amount is not unusual."
Indeed, the case may never get to court at all. Faced with even more legal fees and the possibility of an unfavorable verdict, you will likely put the whole thing behind you by settling out of court for a big sum. Just getting hit with a lawsuit will cost you thousands of dollars in attorney's fees before you ever cross the threshold of a court. The problem is even worse if you are outgunned by sheer size. "You may suffer even though everything you say is truthful. If you are overspent by a larger and richer competitor, you may have to toss in the towel," says Kent.
Myth Number 2: Your competitor has to prove malice. Many businesses believe that they are safe if they do not say anything maliciously or if they are careful not to provide evidence of malice. False. "No malice is required for trade libel cases brought under the Lanham Act," says Kent. If you are saying that your products are better or that your workers will do a better job than a competitor's, you are exposing yourself to risk even though no malice is intended.
Myth Number 3: You are protected if you are just joking. Suppose your employee disparages a competitor while joking with a customer. Is it a defense? Maybe. But not a good one. "If you go to trial and the person who made the disparaging statements is a charmer and claims it was all a joke, the jury may be convinced that the plaintiff is not entitled to relief," says Batista, "ut I would not want to be defending someone on that basis."
How to avoid lawsuits
Train your employees to refrain from disparaging competitors. "Discourage any statements which even arguably might be seen as disparaging," says Kaplan. "Draw a bright line, and stress that it's better to sell your products and services on their own merits." Even mildly disparaging remarks can come back to haunt you. "Even if what you say is on the right side, that doesn't mean that the way it is reported to the competitor won't be something worse," warns Kaplan. "Part of the danger of any disparagement is that even if it's fair and accurate, it might seem actionable to your competitor."
Such training can be a good defense for your company if a lawsuit hits. "You are subject to the vicarious liability of your employees unless you can show the judge that you did everything you could to prevent problems," says Hoffman. "That means establishing a code of ethics, communicating it to employees, and maintaining the proper training programs."
Problems often occur when employees hear vague rumors about a competitor. Perhaps the story is that the business has been involved in shady dealings or has been investigated by a city agency. There is a temptation to regard the rumor as fact and pass it along. "Employees get into trouble when they are not sure, but they open their mouths anyway," says Kaplan.
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TO SIDEBAR: What if you are defamed?
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Sales people under pressure to perform are tempted to stretch the truth. Be watchful of such a factor. Watch your employees--when they talk with customers, are they disparaging competitors? Look for clues from customers. And go one step further--chat with your customers on a regular basis. Ask them how they liked the service they received from your business. Is there any way it can be improved? You may hear that customers were offended when an employee bad-mouthed a competitor. "If you aren't doing anything to find out, then you are not living up to your oversight responsibility," says Hoffman.
Implementing the ideas described in this article should help you avoid most of the problems involved in libel. "The bottom-line advice for business is: Be careful," says Batista. "The good old rough-and-tumble days of being able to say what you want about your competitors are over. Try to keep your sales, promotional, and advertising activities clean."
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If you get sued
Suppose you receive a letter from an attorney threatening legal action because of something you or one of your employees has said about a competitor. What to do?
Most attorneys say the best course is to settle. "Rather than fight it in court, come to terms with the adversary," says Paul Batista, a New York attorney specializing in defending companies. "What is really bothering them? What would they like you to stop doing? Maybe you can dispose of the case instead of just saying, 'Sue us!'"
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Taking the high road is not only the right thing to do from a moral standpoint. It's also less costly. "In the long run, it can be much less expensive to speak well of your own product than to disparage someone else's," says Kent.
Copyright c 1996 by Phillip M. Perry.
Published 1997 by the American Chemical Society.
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