Article on Dendrite case
JULY 20, 2001
PRIVACY MATTERS
By Jane Black
A Victory, of Sorts, for Spouting Off
Judges are freeing anonymous Internet posters to speak their minds, but that doesn't mean their words can't be used against them
Anyone who uses online message boards knows they have their own set of rules. The discussions are freewheeling, breezy, often confrontational. Yet for most Netizens, that's the attraction. People want to get the dirt -- and dish it, too. All well and good if the subject happens to be celebrities or sports. But with financial message boards, the information and rumors can be the difference between companies making money or losing it.
Many companies discussed on message boards don't like such wide-open rules. The chatter, they say, is often irresponsible and may harm corporate reputations -- and their stock price. Result: The courts are witnessing an increasing number of cases in which companies seek to unmask anonymous critics. Yahoo!, which hosts message boards about every public company, recently told a judge in California's Superior Court that it has received "thousands" of subpoenas to reveal posters' identities. Meanwhile, AOL execs have testified in a Pennsylvania court that, in 2000 alone, AOL received 475 civil subpoenas from businesses, "the vast majority" seeking to identify subscribers.
A recent ruling by New Jersey's Appellate Court is helping to clarify when a posting is or isn't a cybersmear -- at least one worthy of being brought before a court of law. On July 11, a three-judge panel affirmed a lower-court ruling that Morristown, (N.J.)-based Dendrite International had no right to learn the identity of an online critic. The reason: There was no proof that Dendrite had been harmed by the John Doe postings. In other words, the court seems to be saying that the burden of proof rests on companies, which must demonstrate material damage before an anonymous poster can be identified. After that, presumably, the issue of libel could be addressed.
LIES AND LIABILITY. The New Jersey ruling is not the first to come down in favor of anonymous Internet critics. On May 18, a federal court in California ordered a publicly traded company and two of its executive officers to pay more than $55,000 in attorney fees incurred by two individuals whom the company sued for posting critical comments on the Raging Bull message board.
These decisions represent victories for online privacy and free speech. The New Jersey Court decision, in particular, addresses the unique context of Internet speech and makes clear that privacy on the Net is worth protecting. But make no mistake: The courts aren't giving anonymous message-board users free rein to say whatever they choose. Far from it.
If you make a false statement on a message board, the potential for a libel or defamation suit still looms large. Legal experts say a good rule of thumb is to make sure all postings are stated as opinion, not fact. "The more steps you take to show that you're an insider with special knowledge, the more likely someone could take you seriously -- and the more likely you could get sued," warns Lyrissa Lidsky, a professor of First Amendment law at the University of Florida in Gainsville.
RED FLAG ALERT. The Dendrite case began in September, 1999, when both the Center for Financial Research & Analysis and TheStreet.com published reports noting several red flags in Dendrite's quarterly earnings. Most alarming, the reports stated, was a change in Dendrite's revenue-recognition policy that could distort earnings. From March 14, 2000, to June 2, one user, who had published under the pseudonym "xxplrr" and was subsequently identified by the court as "John Doe #3," posted nine comments on Yahoo!'s Dendrite message board. Three messages related to purported charges in Dendrite's revenue recognition. Another, posted March 28, stated: Dendrite "simply does not appear to be competitively moving forward. John [Bailye, Dendrite's president] knows it and is shopping hard. But Siebel and SAP already have turned him down."
Dendrite responded by lodging a complaint with the keepers of the message boards, alleging that the postings constituted breaches of contract, defamatory statements, and misappropriated trade secrets. The court saw the case differently. After examining the stock price over the longer period between March 1 and June 15, it noted that Dendrite was down only 90 cents -- less than 4%. "It is not obvious that the statements at issue are false or that Dendrite has been harmed. Although Dendrite alleges that it has been harmed and that it will continue to be harmed...saying it is so does not make the alleged harm a reality," Judge Robert Fall wrote in his opinion.
Good news, right? Indeed, it is for John Doe #3. But the court's decision makes clear that, if true harm can be proved, anonymity isn't protected. The same three-judge panel also ruled last week in favor of another company, Immunomedics. The Morris Plains, N.J., cancer-research company filed suit to unmask an online critic whose message on Yahoo allegedly contained "confidential and proprietary information."
OPINIONS ONLY. So what should you keep in mind when posting to online message boards? While there are no tried-and-true rules, one guideline stands out: Make it perfectly clear that what you write is your opinion, nothing more. For example, it's clearly defamatory to say: "I'm an employee of Company X. I work with the CEO and I know he is skimming funds out of corporate accounts." Even if you can prove it, you may not be able to do so anonymously. "Such a statement goes to great pains to make you believe it's factually accurate," notes the University of Florida's Lidsky, who adds: "You're much safer sticking to the realm of nonfactual statements or opinions. If you state facts that are harmful to someone's reputation, take steps to make sure you are right."
Also keep in mind that you're not fully in control of how your words will affect the actions of other users. Say your posting alleges that the management of Company X is incompetent. If dozens of stockholders sell their shares, Company X might be able to prove that you caused it harm.
In the end, it all boils down to common sense: Don't allow emotions or vitriol to gain the upper hand. It's a free country. Use your freedom wisely. "The nastier you are, the more chance you have of getting sued," says Paul Alan Levy, an attorney with Public Citizen, a Washington advocacy group that filed a friend-of-the-court brief in the Dendrite case. Though the first appellate opinion goes a long way to assuring the confidentiality of certain Internet identities, it's better to play it safe.
Black covers privacy issues for BusinessWeek Online. Follow her twice-monthly Privacy Matters column, only on BW Online.
Edited by Douglas Harbrecht
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