Home > Insights



by Paolo Buccirossi

The spreading on the Internet of false and derogatory information can cause considerable damages. Companies have various means to protect their interests against the risks posed by fake news. They are: continuous monitoring of the network, timely communication initiatives to contrast the negative effects of derogatory information, and legal actions to obtain the removal of the news and the deindexing of the sites that host it. As a last resort, companies can ask for damages.

The quantification of the damage can rely on the typical general approach. It requires the identification of a counterfactual scenario that describes the profits the company would have earner if the fake news had never been released. Then, through the comparison between the factual world and the counterfactual one, it is possible to quantify the harm caused by the fake news. Damages calculated in such a way aim to compensate the company for the loss they suffered.

In other legal systems and with reference to other types of offences, damages awarded to the victim are not limited to what is required to offset the estimated loss. They are set at a higher level and assume a punitive character. In these cases, awarded damages have a dual function: to compensate injured parties (which is the typical function of damages) and to act as a deterrent to unlawful conduct (which is the role played by sanctions). For this reason, damages that exceed mere compensation are called punitive damages. Are there reasons to introduce punitive damages in the case of fake news?

To answer this question, we must first determine when punitive damages are desirable.

According to the economic literature, this happens when two conditions hold:

  • compensatory damages are inadequate;
  • the public enforcement system is likely to generate underdeterrence and victims have better information to prosecute the perpetrators of the violations.

The first condition is not a real motive to introduce punitive damages. It is rather a reason to correct the quantification that would be obtained with a standard approach because it is very likely that it underestimates the real harm. However, this is a good reason not to fear the possible negative effects of introducing punitive damages (such as the proliferation of frivolous actions).

In the case of fake news this condition is most likely met. The web is characterized by a particular “memory”. Unlike other media, news remains available for an indefinite time and can reach the public even in moments away from their first publication. This characteristic makes it very difficult to arrive at a correct estimate of the actual harm. Moreover, reputational effects can impact many spheres of a business activity, including, for example, access to finance or the ability to attract talented workers. In many cases the analysis will be limited to the effects of the derogatory news on customer demand and thus on sales.

Another consideration makes it likely that compensatory damage will be insufficient. A lawsuit is costly and litigation costs of are often ignored or underestimated when courts award damages.

The inadequacy of the public enforcement system is also a fact. The activity of repression of the phenomenon of fake news is notoriously complicated. Identifying the authors of the news can be difficult, prosecuting those who provide the technical means for its diffusion is often impossible. The remedies applied are feeble: the removal of the news is only transitory and sites’ deindexing is ineffective when the news is reported in the “private” pages of social media. All this makes the “expected sanction” for the perpetrator of the crime laughable and insufficient to balance the reasons, whatever they may be, that may induce him to spread untrue news. The introduction of punitive damages is a way to “privatize” the dissuasive activity, entrusting it to those subjects who have a greater interest in carrying it out and better information to pursue it.