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Phillip A. Nicolosi, J.D.

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Social Media Law

Can Online Business Defamation Be Stopped?

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Online Business Defamation

Defamation is one of the most prevalent legal concerns facing online businesses. Defamation is any false statement of fact that is harmful to someone’s reputation and published “with fault,” meaning as a result of negligence or malice. Libel is generally classified as written defamation and slander is generally classified as oral defamation. Slander can be made via oral comments to another, or also by comments broadcast over the radio or television. Until the recent development of “podcasts” and other types of online videos, such as those featured on YouTube, defamation on the Internet was largely deemed to be Libel. As far as proving defamation is concerned, true statements and statements that are opinions are defenses. The problem for businesses is that most negative statements are really only opinions. If a statement is incapable of being objectively proven true or false, it’s not defamation.

When defamation occurs online through a false review, false comment on a forum, etc. and it affects your business, can it be stopped?

Defamation on Facebook, Twitter, and Other Social Media

Can your business have content removed from Facebook or other online mediums? I have received that question often from business owners. Many individuals and businesses are defamed on social media such as Facebook and Twitter. Usually, the first instinct by the defamed person or business is to question whether the social media involved can be held liable. The Communications Decency Act will generally shield interactive websites including social media sites for liability for statements or content posted by its users. However, most social media sites have terms of use that restricts posting any unlawful content or content that infringes upon the rights of others. But, unlike sending a host provider a DMCA take-down notice, social media websites are not compelled to take down any defamatory content.

However, this does not mean that the individuals posting any defamatory content are not liable for their illegal actions. Depending upon the defamatory content, you or your business may have to show actual economic harm (damages) stemming from any false statements damaging your online reputation. Section 230 of The Communications Decency Act of 1996 protects blog owners and other interactive website operators. It states that it “precludes courts from entertaining claims that would place a computer service provider in a publisher’s role.” The law protects Internet “intermediaries” who merely “provide or republish speech by others.” However, this immunity is not absolute as a website cannot alter the meaning of the content published on the site and still be immune from liability.

The bottom line is that nothing short of a court order would likely compel Facebook or any other social media site to take down a page or profile. These sites are clearly exempt for defamatory content unless it can be shown the content is in fact defamatory.

What can your business do?

Even though your business generally cannot sue a blog, social media platform provider, etc. for false remarks made about you or your business, you can still sue whoever posted the defamatory remarks. If your business has been defamed online, you can and should address it. You may even be considering adding an anti-disparagement provision to your business customer contracts. But, while defamation is illegal, negative remarks that are not false and are merely opinions are not illegal. But, are non-disparagement clauses restricting negative customer comments online enforceable? As with any breach of contract claim, your business would have to prove a breach and then damages. A clause that specifically and unequivocally defines which actions are considered to be a breach is imperative. The negative statements must clearly violate the non-disparagement clause. Even if there is no doubt about whether a breach occurred, proving damages in a non-disparagement case (and in defamation cases) is difficult. (Although a liquidated damages provision can be used to sidestep this concern if drafted properly.)

But, it is doubtful your business would be able to prevent a customer from making negative remarks about your business online. These clauses may not be enforceable as against public policy for being unconscionable or unfair provisions in a consumer agreement. More importantly, the drawbacks of using such a clause in your site terms of use or customer agreements can be severe. This practice may leave your potential customers with an uneasy feeling and may result in generating the unwanted negative publicity that your business is trying to avoid in the first place!

There also may be other avenues to pursue in defending your business’s reputation online, such as false light claims and similar common law claims.

Should your business erase negative comments from social media fan pages?

No, unless the content contains abusive, obscene or threatening content. Otherwise, your business should simply respond to any negative posts on its own fan pages in a professional and courteous manner and attempt to defuse the situation. Erasing negative feedback or comments can create a firestorm of bad publicity and, in my experience, only ends up hurting your business in the long-run.

Is Your Website Or Social Media Contest Legal?

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You may decide to offer some type of prize promotion, such as a sweepstake or contest to promote your website or business. While sweepstakes and contests are generally permitted in most states, lotteries are not. The following summary of social media lottery, sweepstakes, and contest laws should help your business stay legally compliant.

Online Lotteries

Lotteries are generally prohibited in each of the fifty states unless legislatively exempted (i.e., state-run lotteries). The element of “chance” is one of the elements generally required to be present in order for some promotion or activity to violate a state anti-gambling statute.  Most states have concluded that where the elements of skill, whatever they may be, predominate over the elements of chance in determining outcome then the game involved does not violate that state’s anti-gambling law. A lottery consists of a prize, chance, and consideration. Therefore, sweepstakes, contests, and similar promotions must omit one of the three elements of a lottery to avoid being deemed as an illegal lottery. They both only combine two of the three “lottery elements.” A contest combines the elements of prize and consideration, but the prize is awarded to on the basis of skill rather than chance. A sweepstake combines the elements of prize and chance but lacks the element of consideration.

Thus, a prize promotion that conditions the chance to win on subscribing to a service, purchasing a product or, in some states, visiting a physical store, may be deemed an illegal lottery.

Federal statutes prohibit, among other things, the mailing or transportation in interstate or foreign commerce of promotions for lotteries or the sending of lottery tickets themselves. (Pic-A-State Pa., Inc. v. Reno, 76 F.3d 1294 (C.A.3 (Pa.), 1996). State laws vary, but “chance” is one of the elements generally required to be present in order for a game to violate a state anti-gambling statute.

States restrict illegal lotteries through criminal anti-gambling laws. For example, the Illinois anti-gambling statute defines an illegal lottery as “any scheme or procedure whereby one or more prizes are distributed by chance among persons who have paid or promised consideration for a chance to win such prizes, whether such scheme or procedure is called a lottery, raffle, gift, sale or some other name.”

Most states have concluded that where the elements of skill, whatever they may be, predominate over the elements of chance, whatever they may be, in determining the outcome, then the “chance” element is lacking and the game involved does not violate that state’s anti-gambling law.  Most states apply this “dominant factor,” or predominance, test.

Are there express state Internet prohibitions? The fact that a state has not passed a specific law does not make participation in or offering of gambling over the Internet legal under the laws of that state.  The question is a complex one and is addressed in several of the articles included on this site.

Online Sweepstakes & Contests

Sweepstakes and contest or prize promotions are regulated by numerous federal and state laws. Federal agencies with jurisdiction to regulate sweepstakes promotions include the Federal Trade Commission (“FTC”), the Federal Communications Commission (“FCC”), the United States Postal Service, and the United States Department of Justice (“DOJ”). Sweepstakes promotions may also be regulated by state attorney generals and, in some states, district attorneys. In some states, this could require registration and obtaining a bond depending on the amount of the prize, among other requirements. If you engage in this type of practice, talk to your Internet attorney to fill you in on the FTC and state requirements. You’ll also want to include sold terms and conditions of the contest or prize promotion to protect your business.

The key to conducting sweepstakes is to avoid consideration. That definition varies and will depend on various factors, such as (1) how easy or difficult it is to participate in the sweepstakes; and (2) whether an alternative method of entry (e.g., entry by mail or fax) is available. Examples of consideration include conditioning entry on the participants purchase a product, a monetary payment, visiting a store, or even providing detailed consumer information in some cases.

Social Media Contest Liability

The FTC’s 2009 revised guidelines confirmed that the rules continue to apply to endorsements and testimonials made directly through “new media” platforms including social media.The FTC has stated that a consumer endorsement made in an effort to win a prize is not different from a consumer endorsement in exchange for the payment of cash or free goods! If the chance to win a prize requires participants to post content featuring your business’s products or services, the participants must disclose that their posts are pursuant to a contest. (This includes “pinning” photos of your business’s products on Pinterest). Your business is expected to tell the participants to make clear that their posts are being made as part of a contest.

Don’t Forget To Disclose “Material Connections”!

I talked about material connections extensively in my previous post. In a nutshell, your business and any individual endorsers must disclose any material connection. According to the FTC, “When there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience), such connection must be fully disclosed.” For direct endorsements made on social media, the FTC guidelines state that receiving a payment, a free product or some other benefit from your business in exchange for posting a product review or other endorsement is a “material connection” which must be disclosed.

The individual endorser is the party expected to clearly and conspicuously disclose that connection. However, your business is expected to advise the endorser up front that this connection should be disclosed and have procedures in place to try to monitor postings by such individuals to confirm the connections are being disclosed.

In March, the FTC sent a letter to the shoemaker Cole Haan indicating that the pins required to enter its contest on Pinterest for a chance to win the $1000 prize were endorsements subject to the disclosure requirements! In that letter, the FTC has essentially clarified that asking consumers to post, pin or otherwise publish content on a social media platform regarding the company’s products or services in order to enter sweepstakes, contest or other prize promotion requires that the post is clearly labeled as being part of the contest!

How Should Social Media Contest Entry Disclosures Be Made?

It is not entirely clear how a chance to win a prize must be disclosed as a material connection with the contest posts or pins. What is clear is that a disclosure which makes no reference to a contest or to the company’s brand fails the FTC’s standards for disclosing the material connection. The FTC did not explain in the letter to Cole Haan exactly how such disclosures should read. But, according to the FTC’s.Com Disclosures guide, “disclosures must be communicated effectively so that consumers are likely to notice and understand them in connection with the representations that the disclosures modify.” This is required even though space-constrained limitations of mobile devices and social media platforms causes obvious problems.

So, potentially, using a hashtag that names the sweepstakes or contest with each post will be sufficient. But, to play it safe, businesses should use a longer disclosure indicating that the post is being made as part of entering a particular contest when the platform allows for longer disclosures to be made.