“PROPER REACTION:
Based on the previous rules, it is clear that upon hearing loshon hora, one should promptly interrupt the speaker and reprimand him for his words. In a case where doing so would casue the speaker embarrassment (i.e. others are present), it is preferable that one tactfully change the subject, thus preventing the further speaking of loshon hora, and offer reproof later (in private).” (“Chofetz Chaim, A Lesson A Day” by Rav Shimon Finkelman and Rav Yitzchak Berkowitz, Day 95).
As seen from the above quote, if someone is speaking LH, you are obligated to reprimand him, and if it’s impossible to do it privately, it must be done publicly.