Trade Libel and Product Disparagement in California: When a Competitor Lies About What You Sell

Last updated: November 2026. Reviewed by Pavel Kolmogorov, California business litigation attorney (State Bar No. 321018).

Trade libel is a false statement of fact that disparages the quality of a business's goods or services and causes a specific financial loss. A competitor who tells your customers that your product fails safety tests, knowing that is false or not caring, has likely committed trade libel under California law if you can name the sales it cost you. The claim carries a two-year deadline. Kolmogorov Law, P.C. brings and defends product disparagement cases in Orange County, Los Angeles, and across California.

Call (909) 235-6116 or contact us online to discuss a competitor's statements about your product, or a disparagement claim made against your company.

What trade libel is and how it differs from defamation

Defamation protects reputation. Trade libel protects sales.

The California Supreme Court draws the line by the interest harmed. Defamation concerns damage to the reputation of a person or business. Disparagement concerns damage to the reputation of products, goods, or services. (Hartford Casualty Ins. Co. v. Swift Distribution, Inc. (2014) 59 Cal.4th 277.) What marks a disparagement claim is an injurious falsehood directed specifically at the plaintiff's business or product, one that derogates it and causes special damages. (Id. at p. 294.)

Ordinary sales talk shows the difference. "Their valves crack under pressure" is a statement about a product. "Their owner cheats customers" is a statement about a company's character, and it belongs on our page about defamation of a business. One sales call can contain both.

The elements of trade libel in California

Juries are instructed on this claim under CACI No. 1731. In plain terms, the defendant must have made a statement to someone else that disparaged the quality of the plaintiff's product or service, and the statement must be untrue. The defendant must have known it was untrue or acted with reckless disregard of the truth. And someone must have relied on it in a way that caused the plaintiff direct financial harm.

Three requirements decide most cases.

Falsity comes first, and the plaintiff carries the burden of proving it. An opinion ("their product is overpriced") is not a false statement of fact. A fabricated test result is.

Fault is second. Carelessness is usually not enough, which is why the source of the competitor's claim matters so much in discovery.

Specific reference is third. Hartford holds that the statement must refer to your product or business and clearly derogate it, by express mention or clear implication. "Other brands cut corners" names nobody.

Special damages: the element that sinks most claims

Here the claim departs most sharply from defamation. A trade libel plaintiff must prove special damages in the form of pecuniary loss, and personal elements such as distress are excluded. (Guess, Inc. v. Superior Court (1986) 176 Cal.App.3d 473, 479.) No presumption helps.

A general drop in revenue after the rumor started will not carry the case. Courts ordinarily expect the plaintiff to identify the particular customers who stopped buying and the specific transactions that were lost. Cases that are strong on falsity fail here: the owner knows business is down and cannot say which accounts left because of the statement.

I ask clients to start a log immediately: who cancelled or hesitated, what they were told, by whom, and when.

How product disparagement comes up between competitors

A rival's sales representatives tell distributors that your product failed a certification test. It passed. Two distributors suspend their orders anyway.

A competitor sends your customers a notice styled as a safety alert, claiming your component was recalled. No recall exists.

The two-year deadline and the one-year trap

A trade libel claim is governed by the two-year period for liabilities not founded on a writing. (Code Civ. Proc., § 339, subd. 1; Guess, supra, 176 Cal.App.3d at p. 475.) Defamation is shorter. An action for libel or slander must be filed within one year. (Code Civ. Proc., § 340, subd. (c).) Courts look at the nature of the right sued on, not the label on the complaint, and a single statement often supports both theories. Treat one year as the working deadline.

The anti-SLAPP risk and the commercial speech exemption

Any lawsuit over speech invites a special motion to strike. If the claim arises from protected speech in connection with a public issue and the plaintiff cannot show a probability of prevailing, the court strikes it. The prevailing defendant then recovers attorney fees and costs. (Code Civ. Proc., § 425.16, subds. (b)(1), (c)(1).) The motion comes early.

Competitor cases often escape that motion. The statute exempts claims against a business primarily engaged in selling or leasing goods or services that arise from its representations of fact about its own or a competitor's goods or services, made to promote its own sales. The intended audience must generally be actual or potential customers, or people likely to repeat the statement to them or influence them. (Code Civ. Proc., § 425.17, subd. (c).) A sales representative's false statement to your buyer usually fits. A reviewer's statement usually does not. Our anti-SLAPP page explains the motion itself.

If your company is the one accused

Read the complaint for what it leaves out. Many disparagement complaints fail to identify a lost customer or to quote the statement.

The defenses follow the elements: the statement was true, it was opinion, it did not refer to the plaintiff's product, or no sale was lost because of it. Some communications are also privileged, including statements made in judicial proceedings and certain communications, without malice, between interested parties. (Civ. Code, § 47, subds. (b), (c).)

Check your insurance before you answer. Commercial general liability policies often cover claims that the insured disparaged another's goods, and the Hartford decision above arose from that kind of coverage dispute. Our page on insurance and the duty to defend covers tender.

Related claims and where these cases are heard

Trade libel seldom travels alone. The same facts may support a false advertising claim against a competitor, a claim under the Unfair Competition Law, and a claim for interference with contracts or prospective business.

We file state-law cases in the Orange County Superior Court, usually at the Central Justice Center in Santa Ana, and in the Los Angeles Superior Court at the Stanley Mosk Courthouse. A federal false advertising count can move the case to federal court, which for Orange County and Los Angeles is the Central District of California. Our business litigation practice handles both sides of these disputes.

What to bring to the first meeting

The statement itself: emails, screenshots, flyers, or notes of who heard it and when.
Proof it is false, such as test reports, certifications, or inspection records.
A list of customers or distributors who cancelled, paused, or asked about the statement, with dates and order values.
Sales records for the affected accounts, before and after.
Your insurance policies, if your company is the one accused.

Frequently asked questions

A competitor is telling our customers that our product fails safety tests, which is false. Is that trade libel in California?

Probably, if three things are true. The statement is a factual claim about your product, not an opinion. The competitor knew it was false or was reckless about its truth. And at least one identifiable customer held back business because of it. California requires proof of that specific lost sale, so begin by documenting which buyers heard the claim and what they did next.

What is the difference between trade libel and defamation?

Defamation is a false statement that harms the reputation of a person or a company. Trade libel is a false statement about the quality of goods or services that causes financial loss. California trade libel requires proof of specific pecuniary loss and of knowledge or reckless disregard of falsity, and it has a two-year filing deadline instead of one.

What is the statute of limitations for trade libel in California?

Two years. California courts apply Code of Civil Procedure section 339, subdivision 1, to trade libel. Libel and slander claims have only one year under section 340, subdivision (c). Because one statement can be characterized either way, waiting past the first anniversary is an avoidable risk.

I know a rival is badmouthing us, but I cannot prove which customers we lost. Do I still have a case?

Not a strong trade libel case yet. California courts generally require the plaintiff to identify particular customers who refrained from dealing and the transactions lost, so a general sales decline falls short. False advertising or unfair competition claims may fit better, because those laws aim at stopping the false statements, though each has its own injury requirement. Evidence of lost customers can also surface later through subpoenas.

Does business insurance cover a trade libel claim against my company?

It may. Many commercial general liability policies cover "personal and advertising injury," which commonly includes publishing material that disparages another organization's goods, products, or services. Whether a California insurer must defend depends on the policy wording and on whether the complaint, or other facts the insurer knows, point to a statement that specifically refers to and derogates the claimant's product. Send the complaint to the carrier promptly and in writing.

Talk to a California business litigation attorney

If a competitor's false statements are costing you sales, or your company has been accused of disparaging a rival, call (909) 235-6116 or contact us online. Kolmogorov Law, P.C. is located at 327 Magnet, Irvine, CA 92618, and represents businesses in Orange County, Los Angeles, and throughout California.

This page provides general information about California law and is not legal advice. Outcomes depend on the statement, the proof of lost sales, and the court.