Re: 9/29/00 - IBD: Companies Are Suing To Stop Cybersmears
Mutual Funds & Personal Finance
Friday, September 29, 2000
Companies Are Suing
To Stop Cybersmears
By Paul Katzeff
Investor's Business Daily
Ever knock a stock while participating in an Internet chat room or message board? If so, next time you’d better think twice.
With increasing frequency, corporations are suing to silence their cyber critics.
Credit Suisse First Boston on July 11 asked a federal district court in New York to order 11 people who used an Internet financial discussion board to pay $1 million for allegedly libeling the firm.
Credit Suisse says the 11 defendants bad-mouthed the giant investment bank and one of its analysts on a Yahoo message board. As a result, the bank says, its reputation was harmed.
The complaint identified only one of the defendants. A news source said he was a retired scientist living in New Jersey.
The analyst reportedly was David Maris. He had given a “hold” rating to the stock of Elan Corp., a specialty pharmaceutical firm. But many investors interpreted that as a “sell” signal. (Investors know that investment firms are wary of offending potential or current clients by assigning explicit sell ratings.)
Some message-board users reportedly reacted by ripping the analyst for being sour on the stock of Elan, as its American depositary receipts were rising in price. Defendants reportedly posted statements alleging that Maris was “evil even to his customers” and was “lying.”
Credit Suisse declined to comment to IBD. Whatever the merits of its suit, experts charge that such suits in general often have scant chance of succeeding if they go to trial. That’s because postings often are constitutionally protected free speech. Besides, who takes anonymous rantings seriously? And, in the end, big corporations elicit little sympathy from juries.
But some businesses proceed anyway, experts say. Defendants face high legal costs, perhaps for years, and emotional stress. To cut their losses, many defendants settle cases. They may end up admitting wrongdoing just to avoid a cash penalty.
And such suits have a chilling effect, experts say. They discourage criticism by other message-board users who don’t want to risk being sued.
“I think the purpose is to silence online critics,” said Eric Turkewitz, a New York lawyer who has represented defendants in such suits. “Look at the logic. What can some corporation suing an individual win economically? Many defendants have little (money) to begin with. Their own legal fees in the vast majority of cases exceed what they can get out of it.
“Many of these cases get settled within a year. That appeals to defendants, even if they’ve done nothing wrong, because they don’t have the wherewithal to spend $10,000 to $25,000. And companies know this.”
Turkewitz estimates that more than 100 such defamation suits have been brought in the past year and a half.
“The frequency of new cybersmear lawsuit filings seems to be increasing substantially in the last few months,” said CyberSecuritiesLaw.com, a Web site devoted to Internet securities law.
The site says cybersmear suits have been filed by Cummins Engine, Imperial Sugar, InvestAmerica and others.
Floyd Abrams, noted First Amendment attorney, said, “A few things are at work. One is that participants in chat rooms and the like are frequently unused to speaking publicly. They often view the Internet as akin to a telephone, as a practical place to speak freely. And almost always these people do not have (the protection of) insurance or serious funding. So they are tempting targets for companies they have attacked.”
While laws vary from state to state, generally an opinion is protected as free speech, Turkewitz says. But the First Amendment does not protect statements presented as facts. “You can say, ‘I think the company CEO is a jerk,’ and it’s clearly an opinion,” he said. “If you say, ‘The CEO is a convicted felon,’ that will be taken as an assertion of fact.”
That’s why a New Jersey court in July reportedly agreed with a claim of Biomatrix that it had been defamed. For more than a year, three people bashed the New Jersey biomedical firm online. They reportedly accused the company of such things as making potentially deadly products.
“Expressions of opinion are different from the Biomatrix case,” Turkewitz said. “In that case, there were specific allegations having to do with people being injured by medical products and by company officials being Nazis. These were outrageous comments. They were offensive factual assertions that were false, as opposed to matters of opinion.”
Other companies are attacked online by short sellers, who want to drive down the firm’s share price.
But even if your posting about a company is clearly an opinion, that doesn’t protect you from being sued.
“Many companies bringing suits don’t expect to go to trial,” Turkewitz said. And that anonymous screen name you use won’t protect you for long. After filing suit, companies subpoena Internet portal records to learn the identity of critics using pseudonyms.
Turkewitz predicts courts will have to resolve a conflict between constitutionally protected free speech and statutory protection of investors’ rights.
“It’s almost inevitable that someone posting things on the Internet that are inflammatory will be accused of market manipulation,” he said. “That person will respond by asserting a right to speak freely about a stock. That clash has yet to be resolved.”
© Investor's Business Daily, Inc. 2000
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