Business Law
Chapter 6
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People continually compete against one another in the world of business. Our economic
system strongly encourages this competition as a means of improving everyone's
standard of living. However, is it possible that competition can be undertaken in such a
manner that a tort is committed? Or is any and all competition beneficial?
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Certain kinds of conduct violate duties that are owed to other people, and are therefore
considered civil wrongs for which remedies should be offered.
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In this chapter we will look at torts that are somewhat unique to businesses, which is why
they were not covered in the previous chapter on torts. These torts are often committed
as the result of the competitive nature of business and are called, therefore, business
torts.
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We will first look at disparagement, sometimes called publication of injurious falsehood.
Slander of title and trade libels will also be covered in this section of the chapter. Then we
will look at appropriation of likeness for commercial purposes. If your photograph is used
without your permission to advertise a commercial product, are you entitled to damages?
After this has been addressed, we will look at actions that interfere with contracts and
business relations. Finally, we will address online challenges, online matters that are
becoming more and more an integral part of our daily business activities.
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Disparagement closely resembles defamation that we discussed in the previous chapter. If
you remember, defamation injures the reputation of a person. Certainly if a
businessperson's reputation has been injured by false statements, remedies in
defamation are available to protect that businessperson's reputation.
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However, Disparagement is concerned with monetary damages that a businessperson
suffers from an injurious falsehood to his or her business product. If only the reputation of
a businessperson has been injured, the cause of action lies in defamation.
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Another major difference between disparagement and defamation is that when alleging a
disparagement, the plaintiff has the burden of proof to show the falsity of the statement,
whereas in defamation, the defendant is required to prove the truth of the statement.
The two types of disparagement are slander of title and trade libel.
Welcome to Chapter 6 of the Business Law class, where we will discuss business torts and
online consequences. Please click on the slide to advance the presentation.
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For example, suppose that Dr. Lee, an optometrist, sells a variety of eyeglasses to the
public. Snyder makes the following two statements: "Dr. Lee is a crook, a total
incompetent doctor and has been selling the public the wrong prescription eyeglasses for
years" and "The eyeglasses sold by Dr. Lee are made of poor quality glass, very difficult to
see out of and are held by frames which frequently dropped the lenses and break almost
immediately upon wearing them." The first statement by Snyder implies that Dr. Lee lacks
competency in his profession, is dishonest and is committing a fraud on the public. Dr. Lee
could sue Snyder for personal defamation; libel or slander depending on how the
statement was made. The second statement deals directly with the quality of the product
Dr. Lee is selling and the proper lawsuit would be disparagement (trade libel).
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A Slander of title occurs when there is either an oral or written false and unprivileged
statement about the title to real or personal property that causes actual monetary
damages to the plaintiff.
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A slander of title tort is designed to protect the "marketability" of the property.
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For example, if Mohammed records a document that falsely claims an ownership interest
in property that is actually owned by Jill, Jill may have trouble selling the property due to
Mohammed's false claim. Any purchaser of the property will need to defend against
Mohammed's claim to have clear title to the property. In fact, Jill may be forced to sue
Mohammed to remove his false claim from the county record before she is even able to
sell the property. Mohammed's false claim is a slander of title that gives Jill the ability to
recover the monetary damages caused by Mohammed's false claim to having an
ownership interest in her property.
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In order to prove that a slander of title has been committed, the plaintiff must be able to
prove (1) that the statement was published (often by recording a document in the county
records); (2) the falsity of the statement; (3) that there was an absence of privilege; and
(4) that there was a disparagement of another's property, that is relied upon by a third
party, resulting in a monetary loss.
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In Appel et al. v. Burman in your book, we look at how the issue of slander of title grew
out of a real property dispute.
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On the other hand, a Trade libel is an intentional disparagement on the "quality" of
another's property (goods or services) that results in monetary damage. If an advertiser
falsely claimed that a competitor's product was making consumers ill due to spoiled
contents, the competitor may be able to sue using the tort of trade libel to recover the
lost business.
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The first element that the plaintiff must prove, in order to be successful in his or her claim
of trade libel, is that he or she suffered actual monetary loss. This element is sometimes
referred to as requiring the plaintiff to prove special damages in the form of actual
pecuniary loss. Next, the plaintiff must prove that the disparaging statement is false.
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Unlike the tort of defamation, the plaintiff is not entitled to a presumption that the
statement is false. This false statement must be one of fact, and not opinion. The courts
have held that normally this distinction is a question of law for the court and not a
question of fact to be made by a jury. However, if the statement is ambiguous and could
be understood by an average reader as being either fact or opinion, then it is appropriate
that the determination be left to the jury.
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An important feature to note is that the plaintiff may not use a claim of mental distress as
a type of damage.
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There are three basic defenses to disparagement. These defenses are essentially the same
as those that are available for defamation. The basic defenses are: truth, absolute
privilege and qualified privilege.
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To be disparaging, a statement must be untrue.
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The plaintiff has the burden of proof and must prove the statement is not the truth;
however, if this burden is not met, then truth operates as a defense. A failure by the
plaintiff to prove that the statement was false would give the defendant the opportunity
to use a motion to dismiss, or a motion for summary judgment, in order to end the
lawsuit.
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The absolute privilege we discussed under defamation also applies for disparagement.
Therefore, certain statements made in judicial proceedings, legislative proceedings and
certain executive proceedings have an absolute privilege.
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The courts have ruled that qualified privilege exists for rival claimants to the property and
also for competitors.
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Rival claimants are justified in protecting their interests in the property and, so long as the
claim is asserted in "good faith and without malice," they have a "qualified privilege" that
protects against a claim of disparagement.
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Competitors may also make general claims of comparison with another's property, and
enjoy a qualified privilege, as long as the claims are not false statements of fact.
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Next we will look at the appropriation of a person’s likeness for commercial purposes.
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California has long recognized a common law right of privacy.
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If you remember from the previous chapter, the right of privacy is broken down into four
categories. One of those categories is when there has been an appropriation for the
defendant's advantage of the plaintiff's name or likeness. Sometimes courts refer to this
tort as the common law right of publicity. The elements of the tort were well stated by
the Court of Appeal in a case involving the actor Clint Eastwood. Eastwood sued the
National Enquirer over an article that falsely claimed he was involved in a "love triangle."
In that case, the court stated that the cause of action for the common law right of
publicity "may be pleaded by alleging (1) the defendant's use of the plaintiff's identity; (2)
the appropriation of plaintiff's name or likeness to defendant's advantage, commercially
or otherwise; (3) lack of consent, and (4) resulting injury". In addition, in nineteen
seventy-one, California complemented this common law tort by adopting it in Civil Code.
This code section provides that "any person who knowingly uses another's name,
photograph, or likeness, in any manner, for purposes of advertising products,
merchandise, goods, or services, or for purposes of solicitation of purchases of products...
without such person's prior consent... shall be liable for any damages sustained by the
person... injured as a result thereof."
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The difference between the common law right, and the statutorily granted right, is that
under the statute the plaintiff must prove that the use of a person's name or likeness was
knowingly made.
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Under the common law, there is no requirement that the use be knowingly made. Mistake
and inadvertence are not a defense to a claim of commercial appropriation.
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What if a local business uses a picture of a celebrity in an advertisement without seeking
the celebrity's consent? Has the business wrongfully appropriated a property right of the
celebrity? The answer is yes, if the celebrity can prove the following elements: (1) the
defendant used the plaintiff's identity; (2) the appropriation of plaintiff's name or likeness
was used to defendant's advantage, commercially or otherwise; (3) the plaintiff must not
have consented to the defendant using his or her likeness; and (4) plaintiff suffered injury
or damages.
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Are there any concerns with free speech issues in appropriation cases? Yes, there
certainly may be. There is a need to balance a person's right of privacy to the right of free
expression. We look at look at Montana v. San Jose Mercury News, in your book, to see
how one court handled this issue.
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Three different theories make up the tort of interference with the economic relations of
others, these are: Inducing a breach of contract, Interference with a contractual
relationship, and Interference with a prospective economic advantage of another.
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Underlying all three theories is the concept that a right that has been created under a
contract is also considered a property right. As with other property rights, a person is
entitled to enjoy his or her property right free from an unjustified wrongful interference.
Now let’s look at the three different theories.
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This inducement to breach another person’s contract is designed to protect a person from
intentional acts that are undertaken to produce an actual breach of a valid contract.
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Our economy needs contract rights to be given strong protection to encourage commerce
and entrepreneurial activity. If the rights a person possessed under an existing contract
were not protected, why would the person invest millions of dollars in any business?
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For a plaintiff to win using this theory, he or she must prove: that there is an existing valid
contract with another party. A voidable contract is considered valid until it is voided and
may therefore serve as a basis for this tort. Once the existence of a valid contract has
been shown, the plaintiff must prove that the defendant had knowledge of the contract
and intended to induce its breach.
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Knowledge alone is not enough; the defendant must also have intended to produce the
breach of the contract.
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The plaintiff will also need to prove that there was an actual breach of the contract by the
other party to the contract. It must also be proven that the defendant's unjustified
conduct was wrongful and caused the breach. Wrongful conduct needs more than simply
the interference with an existing contract. If all the defendant does is interfere with an
existing conduct and the plaintiff is unable to prove other wrongful conduct, the
defendant will not be liable under this theory. Finally, the plaintiff must have suffered
damages as a result of the defendant's actions.
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What happens if a defendant interferes with another's contractual relation, but does not
induce an actual breach? The theory of interference of contractual relations is designed to
protect against intentional acts that do not necessarily result in a contract breach but
merely makes the plaintiff's performance of the contract more expensive or burdensome.
This tort requires proof that: (1) the plaintiff had an existing valid contract with a third
party; (2) the defendant had knowledge of the contract; (3) the defendant's intentional
and unjustified acts were designed to interfere with or disrupt the contract; (4) there was
actual interference with or disruption of the relationship, and (5) damages were suffered
by the plaintiff as a result of the defendant's actions.
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The third theory, Interference with a Prospective Economic Advantage, the courts use is
one that closely resembles that of interference with contract relations.
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This third theory is designed to protect against intentional acts, causing harm to an
economic relationship that is likely to produce an economic benefit
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Here the plaintiff is able to protect the possibility that an economic benefit will be gained
from a contractual relationship with a third party had it not been for the defendant's
actions. In other words, it is not necessary that the plaintiff actually have a contractual
relationship with the third party, only that there be a possibility that there will be a future
benefit of an economic nature.
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For the plaintiff to succeed on this theory, he or she must prove the following elements:
(1) it must be shown that there was an economic relationship with a third party that
offered the probability of a future economic benefit to the plaintiff; (2) the plaintiff must
then show that the defendant had knowledge of this relationship and that the
defendant's intentional and unjustified acts were designed to disrupt the relationship
between the plaintiff and the third party; and (3) that there was an actual disruption of
the relationship and that damages were suffered by the plaintiff as a result of the
defendant's actions. Using what you have read in this section, carefully consider the
following cases: Lowell v. Mother's Cake & Cookie Company and California Auto Court
Association v. Cohn, in your text.
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With the popularity of the Internet, and the ability it provides to hide a perpetrator's
identity, the commission of online crimes has become a problematic use of technology.
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E commerce is a term used to describe an idea, thing, or person associated with the
computer age, such as, online culture, online space, online law. In simple language, it is
the electronic medium through which we communicate online. To an increasing degree,
cyberspace, and more specifically, the Internet, is altering the way we do business, and
the speed with which transactions are conducted. Just a few of the innovations that we
now rely on every day are smart-phones, instant messaging, email, digital telephony,
teleconferences, online banking, and electronic contracting and transactions. The use of
the Internet has resulted in numerous challenges as we have struggled to adopt
traditional legal principles to transactions that are unique to our online activities.
Although the Internet continues to evolve almost on a daily basis, there are already some
important federal controls in place.
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Crimes that can be committed using computers, include hacking, spamming, forgery,
financial theft, identity theft, embezzlement, theft of trade secrets, intellectual property,
and other proprietary information, just to name a few. The list continues to grow, limited
only by the creativity of the hacker, the person who breaks into the computer on which
the stored data is contained.
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Challenges in prosecution of online crime that are being addressed by federal and state
prosecutors include jurisdiction, based on the site of the crime - it can be done from
anywhere in the world; physical evidence, and identity of the hacker.
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The online environment is not immune from torts. Consider: many of the business torts
discussed in this chapter; as well as fraud and misrepresentation; defamation; identity
theft; and one that is unique to the Internet- spam. In particular, identity theft poses a
real and major problem on the Internet as more and more people engage in online
activities like online banking, online catalog shopping, e-Bay and Amazon.com purchases,
and online business and commercial transactions. Software developers, Internet service
providers and a number of online companies are actively combating the security problem
by developing electronic "firewalls" and additional security protection for online users and
subscribers. It is an ongoing challenge as hackers and online thieves become increasingly
sophisticated.
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Challenges to victims of online torts include extending traditional tort concepts and
principles to the online tort; identifying and finding the wrongdoer, who can be anywhere
in the world; obtaining jurisdiction and selecting the appropriate forum for trial, one
where the victims' damages are recoverable.
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This concludes chapter six. We covered Business Torts and Online Consequences issues,
including disparagements, Appropriation of Likeness for Commercial Purposes,
Interference with Economic Relations and inline considerations.