General Practice, Solo & Small Firm DivisionMagazine

Volume 17, Number 6
September 2000



By Jeffrey R. Elkin

Because much of the information available on the Internet is relatively uncensored, the environment is ripe for untruths, half-truths, or intentional misrepresentations to be made about a company, its officers, or its products. Numerous defamation cases have been filed by companies seeking to counter the potentially harmful information appearing online in cyberspace, and the number is likely to grow.

Virtually anyone with a computer, a modem, and Net access can proclaim themselves an "expert" on any topic and pass along rumors, innuendoes, and falsehoods to millions of unsuspecting readers. A tremendous amount of unverified information is constantly available through websites, online newsletters, bulletin boards, e-mail, and Internet chat rooms. Most of these sources remain anonymous and are identified only by often-obscure addresses that conceal their true identities.

Because of ease of access and apparent anonymity, the Internet has become a haven for individuals with questionable motives to post inflammatory information about a company—information that may be false. Recently, there have been numerous instances in which an individual or a group of individuals have posted highly damaging "news" in chat rooms and on bulletin boards. In many cases, the bearers of such detrimental comments are "virtual" unknowns, and the damaged parties face legal difficulties in finding out who they are.

The common law tort of defamation was designed to protect an individual’s interest in his or her reputation, and it is well settled that a corporation may be defamed. Generally, a cause of action for defamation consists of three elements: a published statement; that was defamatory concerning the plaintiff; that was made by the defendant while acting with either actual malice, if the plaintiff was a public official or public figure, or negligence, if the plaintiff was a private individual, regarding the truth of the statement. Of course, the statement must be false in order to be defamatory. A defendant may be able to defeat a defamation claim by relying on certain defenses and privileges, depending on the context of the allegedly defamatory statement.

A 1964 opinion by the U.S. Supreme Court affects virtually every defamation case. In New York Times Co. v. Sullivan, the Court ruled that because of the First Amendment, a plaintiff who is a "public official" may succeed in a defamation case only if he or she establishes that the defendant made the allegedly defamatory statement with "actual malice"—with knowledge that the statement was false or with reckless disregard for whether it was false. This constitutional protection was later extended to include "public figures." Public figures fall into two categories: all-purpose, or general-purpose, public figures; and limited-purpose public figures. General-purpose public figures are those individuals who have achieved such pervasive fame or notoriety that they become public figures for all purposes and in all contexts. Limited-purpose public figures are public figures for only a limited range of issues surrounding a particular public controversy.

The courts have held that the laws of defamation apply to false statements made over the Internet. The questions, however, revolve around who is liable for negative, inflammatory postings. Defamation cases that have been brought thus far have focused on two different types of defendants: the Internet Service Provider (ISP) and the actual individual posting the message, whose identity is typically unknown.

Many companies that believe their reputations have been damaged by negative Net postings have attempted to hold the Internet services responsible for the messages that are posted on their sites, claiming that ISPs have a duty to monitor the contents of such postings. The ISPs have disagreed, arguing that they should not be forced to police their subscribers. The courts have generally agreed with the ISPs. In addition, the Communications Decency Act immunizes ISPs from defamation liability for information that originates with third parties, although the law also encourages such providers to make "good faith efforts" to prevent such defamation.

Beyond being named in certain suits, ISP providers often find themselves in the midst of another controversial area of Internet defamation cases. Because the actual authors of the inflammatory postings are unknown, damaged parties have used the courts to force the ISPs to reveal the identity of the author. While Yahoo and others promise not to reveal information about their users except when required by law, the companies now warn in advance that they will "reveal names, e-mail addresses and other information when served with a subpoena."

Because public companies are easy prey for defamatory postings on the Internet, stock-trading activity may be monitored to determine if certain users are attempting to gain financially through the dissemination of (mis)information. Various defamation cases have been brought against Internet users whose postings may have affected the stock prices of certain publicly traded companies. The damaged parties claim that defamatory messages were posted against management in order to manipulate and profit from fluctuating stock prices. The majority of Internet defamation cases are not primarily driven by money; rather, they are used as a means to clear a name and salvage a reputation.

While there is no surefire way to put a stop to such activities, businesses must become aware of the potential damages that can be caused by inaccurate postings, either intentional or not. Proactive measures should be applied as part of the standard investor-relations function: maintain and update a company website; provide shareholders and prospects with current company-specific information—any (mis)information they obtain through other sources can be confirmed by the investor-relations professionals; routine correspondences with media/shareholders, such as press releases that announce developments at the company should be periodically written and forwarded to the press as well as investors; monitor chat rooms and bulletin boards and, to the extent that these sites are known, have a company representative monitor the information and messages that appear at various Internet bulletin boards and chat rooms. Businesses can be retained to "troll" the Web in search of relevant postings. Similar to clipping services that monitor conventional print media, these companies identify hard-to-find sites that may contain defamatory statements. The company should be prepared to respond with accurate information should any rumors or misstatement of facts be posted.

Unfortunately, these measures may not be enough to prevent all inaccurate information from appearing on the Web. Once management has discovered that (mis)information has surfaced, they should take any or all of the following steps to remedy the situation: respond to the posting with accurate information and provide a contact person to answer any questions; ask the ISP to remove the posting; and attempt to identify the e-mail address of the user(s) from the ISP. If these methods prove unsatisfactory, legal action may be required. However, a company adopting this strategy must understand the consequences of a lawsuit. The action could turn into a public relations nightmare if the company somehow appears to be bullying the efforts of the individual employees or shareholders, who are perceived as wanting only to expose the "truth." Moreover, even if the company is victorious, an issue of "collectability" may arise where the defendant is unable to pay any damages that have been awarded.


Jeffrey R. Elkin is a partner with Porter & Hedges, LLP, in Houston, Texas.


This article is an abridged and edited version of one that originally appeared on page 22 of Business Law Today, January-February 2000 (9:3).

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