As Rupert Murdoch’s Fox Corporation battles to contain the Dominion lawsuit scandal that has engulfed its top executives and stars, another crisis is building in the wings that has the potential to cause further turbulence for the media empire.

Smartmatic’s lawsuit against Fox News has attracted only a fraction of the attention garnered by the legal action of Dominion Voting Systems. Yet both firms are suing Fox for defamation related to its coverage of Donald Trump’s stolen-election lie, and both pose a serious threat to Fox’s finances and reputation.

In fact, on paper Smartmatic’s suit appears to be the more dangerous. It’s demanding damages of $2.7bn, compared with Dominion’s $1.6bn.

So far, attempts by Fox lawyers to have the Smartmatic case dismissed have fallen on stony ground. Last week the New York state supreme court in Manhattan gave the green light for the case to proceed against Fox News, the Fox Business host Maria Bartiromo, the former business anchor Lou Dobbs and Trump’s former lawyer Rudy Giuliani.

Smartmatic, a global election technology company headquartered in London, lodged its defamation suit in February 2021. “The Earth is round,” was the complaint’s striking opening sentence. “Two plus two equals four. Joe Biden and Kamala Harris won the 2020 election … ”

The complaint goes on to argue that, contrary to these indisputable facts, Fox News broadcast a series of blatant lies in support of Trump’s stolen election conspiracy theory. “Defendants did not want Biden to win the election. They wanted President Trump to win re-election … They also saw an opportunity to capitalize on President Trump’s popularity by inventing a story.”

To prop up that story, the lawsuit claims, Fox needed a villain. That villain was Smartmatic.

Smartmatic claims that more than 100 false statements were broadcast by Fox News hosts and guests. Smartmatic was falsely said to have been involved in 2020 election counts in six battleground states – in fact, it was present only at the count in Los Angeles county.

Fox broadcast that Smartmatic shared its technology with Dominion, when in fact the two companies had no communication and regarded each other as rivals. Smartmatic was in cahoots with foreign governments in a conspiracy to rig the vote for Biden, Giuliani said on Bartiromo’s show – a claim that the company disputes as false and defamatory.

Fox also described Smartmatic as having been founded in Venezuela at the behest of corrupt dictators. In fact, it was founded by Antonio Mugica and Roger Piñate in 2000 in Boca Raton, Florida, in the wake of the “hanging chad” fiasco, with the aim of using technology to restore people’s faith in election results.

The business has since grown around the world. The firm claims that it has lost clients as a result of what it calls Fox’s “disinformation campaign”.

Fox News has disputed Smartmatic’s multibillion estimate of its losses, calling it vastly inflated.

A spokesperson for the broadcaster told the Guardian: “Freedom of the press is foundational to our democracy and must be protected, in addition to the damages claims being outrageous, unsupported and not rooted in sound financial analysis, serving as nothing more than a flagrant attempt to deter our journalists from doing their jobs. There is nothing more newsworthy than covering the president of the US and his lawyers making allegations.”

Smartmatic has a very high bar to meet if it is to win the defamation suit at trial. New York state law has a rigorous approach to the first amendment of the US constitution which preserves press freedom.

Under it, plaintiffs have to be able to convince a jury that not only did the media outlet put out false information, it did so with “actual malice”. That means that it either knew it was peddling a lie and went ahead anyway, or showed a reckless disregard for the truth.

“New York is pretty protective of media rights,” said Roy Gutterman, a media law professor at Syracuse University who was a consultant early on in the Smartmatic case advising a non-party entity. “Every year I read a lot of cases from New York, and it’s hard to be successful in this state.”

Despite this tough challenge, so far the wind is in Smartmatic’s sails. David Cohen, the New York supreme court justice presiding over the litigation, has indicated that the company has a strong enough case to go to trial.

In last week’s ruling, Cohen found that “at a minimum, Fox News turned a blind eye to a litany of outrageous claims” about Smartmatic. “Plaintiffs have pleaded facts sufficient to allow a jury to infer that Fox News acted with actual malice.”