This article considers the law in Germany on defamation of corporations. In particular, we consider the hypothetical situation where Company A has posted an article on its website stating that Company B has been defrauding customers.
On the assumption that the article was made without any proper basis and was, in fact, defamatory, we consider:
- what remedies (if any) Company B would have against Company A in Germany; and
- whether the position would be any different in this jurisdiction if (i) one of Company A's directors (Mr A) had also defamed Company B; or (ii) the article posted by Company A also defamed a director of Company B (Mr B).
I. Case study – defamation by and against companies
In Germany the possible remedies available will depend on what kind of defamation claim is brought. Not all false statements are defamatory and therefore a range of considerations will need to be taken into account. These include the form and content of the statements and their origin.
Possible remedies for Company B as against Company A in defamation arise from sections 4(7) and 4(8) of the German Act Against Unfair Competition (Gesetz gegen den unlauteren Wettbewerb) (the “UWG”). Section 4(7), UWG applies to value judgments, whereas section 4(8), UWG applies to unverifiable factual statements. A claim under section 4(8) requires proof as to the truth of the statement, although this requirement only applies if the statement is demonstrably false.
Selecting the correct remedy is not always easy. In the context of this case study, we have considered both sections 4(7) and 4(8):
1. Section 4(7), UWG - value judgments
In considering defamation under section 4(7), there are two questions:
1.1 Was the statement made in order to lower the reputation of Company B in the eyes of its regular customers?
If it is clear to everybody that the statement was, for example, merely meant as a joke for publicity or advertising purposes, this test will fail. However, if the statement is a negative value judgment and Company B’s customers are likely to take it seriously, it would be considered defamatory.
1.2 Does the statement have a disproportionately negative effect on Company B’s interests?
This will require consideration of the rights enjoyed by customers to form independent judgments and exercise free as against Company A’s right of freedom of expression under article 5 of the German Constitution.
In this case, it seems very likely that anyone who read that Company B defrauds its customers would not wish to buy Company B’s products. Since the statement is untrue, Company B’s customers’ ability to exercise free choice has been impaired.
2. UWG section 4(8) – factual statements
2.1 Claim and Broadcast of a fact
A statement under section 4(8) is deemed to be factual if it is objectively verifiable (i.e. there is supporting evidence and it is not a value judgment). It also needs to be untrue and since, in the hypothetical case study, Company A posted this statement without any proper basis and without evidence, it cannot be considered a factual statement.
Company A, as the infringing party, will have the burden of proving the truth of the statement. However, on the basis that the statement is untrue, section 4(8), UWG has also been infringed.
In order for Company B to obtain redress under sections 4(7) and (8), UWG, the impact of Company A’s statement on competition would need to be more than insubstantial. Assuming this is the case, the following remedies may be available:
3.1 “Cease and desist” order
A section 8(1), UWG order would require Company A to “cease and desist” its infringing behaviour. This can work where a defamatory statement has already been made, where there is risk of it being made again, or where no defamatory statement has yet been made but there is a risk of that happening. No proof of fault is necessary to succeed with this remedy.
3.2 Removal order
The right to a removal order under section 8(1), UWG is also not linked to the fault of the infringing party. However, unlike a cease and desist order, it is necessary that an unfair act of competition has already occurred. Since, in the case study, the statement now appears on Company A’s website and there is a risk that it could post the infringing statement; again both a removal order and a cease and desist order may be available.
It is also possible to make a claim pursuant to section 9, UWG for compensatory damages. The following requirements will need to be met:
3.3.1 Unfair competitive act - the court must be satisfied that an unfair competitive act has been committed that had more than an insubstantial impact on competition (section 3, UWG) and also constituted a breach of either section 4(7) or (8).
3.3.2 Fault - section 276 of the Civil Code (Bürgerliches Gesetzbuch, “BGB”) requires that damages will only be awarded if Company A either intended to make a defamatory statement or was negligent as to whether it had. It will be sufficient for an award of compensatory damages if Company A acted with contingent intent.
3.3.3 Damage - Company A’s infringing actions must also have caused financial loss to Company B. In this case, Company B could obtain restitution “in kind” pursuant to section 249, BGB, namely, compensation for direct losses and/or compensation for lost profits. Under certain circumstances, Company B could also make a claim under section 10, UWG for any benefits enjoyed by Company A as a consequence of posting the infringing statement.
3.4 Revocation - Company A’s continuing violation of section 4(8), UWG may also give Company B the right to revocation. This is not dealt with here.
II. Case study – defamation by and against company directors
1. Defamation committed by both Company A and by one of its directors
In this alternative, the remedies available to Company B are as set out above. The difference is that they can also be claimed against the director. The director may try to argue that he did not make the statement in his capacity as a director, but only as a private individual. In most cases it will be quite easy to rebut this argument. Any director who makes such a statement is likely to be considered to have done so for commercial and competitive reasons. He is unlikely to have made such a statement without considering the potential commercial benefits of doing so. In addition, the director is responsible for representing Company A. On this basis, any statement he makes, even if made as a private individual can be easily connected with Company A and his position as a director. In the present circumstances, where the company itself has also posted the message, this will be especially true. On this basis, the remedies set out above will be available to Company B as against both the director and Company B.
2. Company B and one of its directors are defamed
Section 8(3), UWG gives all competitors the right to begin a claim. As a competitor, Company B’s director can apply for a “cease and desist” order, a removal order and damages, as set out above. He may also file a personal claim, pursuant to BGB sections 823 and 1004.