Trade Libel

The spectacular growth of user-generated content via twitter, Facebook, Yelp, wikis, video-sharing sites and anything else designated Web 2.0 has given new valence to online character and trade assassination and the legal issues (primarily, defamation) that go along with it.

So far website owners haven't had much to worry about. Under §230 of the Communications Decency Act ("CDA") online service providers (anyone offering a product that allows users to interact and collaborate with each other in a social media dialogue) are generally immune from lawsuits that seek to hold them liable for speech posted by their users. As a consequence the majority of attention in this field has gone to the issue of personal libel and the the liability of individuals like Courtney Love and fashion bloggers who end up tweeting or blogging allegedly scurrilous things about personal enemies.

Trade libel (or commercial disparagement), however, may quietly become a bonafide risk for companies operating in the social media space.FN1 Several court decisions, most notable the Roommates.com case, indicate that immunity under CDA is not absolute.

The risk here is restricted to companies that can be said to have reasonably contributed to or encouraged unlawful conduct by its users. Fair Housing Council of San Fernando Valley v. Roommates.Com (2008) 521 F.3d 1157 (which involved an Internet website that facilitated postings inquiring about the race of a prospective renter) is the prevailing guide on the matter, the court having said (albeit in dicta) that where the service provider “solicits” or otherwise actively participates in generating illegal or defamatory content, then the immunity provisions of the CDA may not apply.

Social media is new enough as a business practice that the relevance of Fair Housing is at best speculative and, further, the practical risk of trade libel may be minimal to most social media companies, however, to the extent a company is specifically modeled to provide a forum for consumers to criticize or complain about businesses (see e.g., ripoffreport.com, complaints.com, etc) and to promulgate such criticisms and complaints, legal exposure is there.

FN1. Trade libel in California is defined as an "intentional disparagement of the quality of property, which results in pecuniary damage to plaintiff." Erlich v. Etner (1964) 224 Cal.App.2d 69, 73, 36.