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Friday, September 19, 1997 7:00 p.m.
You better watch what you say in online discussion groups, or
prepare to defend yourself.
by Michael Brush
In a move that sent a chill down the backbone of the
Internet, Web surfers used to saying whatever they
want -- damn the facts -- were put on notice this week
that at least one company is fed up and not going to
take it anymore.
The company, Presstek, filed a defamation suit against
three investment discussion group posters, in essence
alleging they spread lies that cast the firm in a bad
light. And judging by the reaction of other firms to
the action, more lawsuits are just around the corner.
Presstek says publicity about the suit sparked calls
from at least a half dozen other firms interested in
filing similar complaints.
"I think it is important for people to understand that
there are a lot of people in American businesses who
know exactly what is going on on the Internet, and
that they are not going to tolerate unlawful conduct,"
says Robert McDaniel, the general counsel for
Presstek.
McDaniel says he does not want to discourage open
discussion of his company on the Net. "That is an
appropriate use of the Internet. But you can influence
a lot of people. And if you do so improperly, I think
that is a problem. What bothers me is the destruction
of shareholder value using inaccuracies and innuendo
as a tool."
So where exactly does that leave Net-based investors
who thrive on the open exchange of ideas in the
freewheeling discussion groups found in the threads at
sites like Silicon Investor and Motley Fool?
Do you have to fact-check every comment, or preface
posts with legal-sounding disclaimers as some
participants in the Presstek thread at Silicon
Investor took to doing in the wake of the lawsuit? Or
does the protection of freedom of speech give you
carte blanche to say whatever you please?
The answer lies somewhere in between. Fortunately,
chat room participants do have a long tradition of
free speech on their side, which gives them a lot of
latitude when making comments about companies. That,
plus a little common sense, will get participants
through most discussions without getting sued.
Lawyers warn, however, that messages posted on the Web
appear virtually everywhere in the world, so attention
to U.S. law may not always be enough.
With that in mind, we put together an overview of what
you can say in investing chat groups, and still keep
the lawyers -- the U.S. lawyers, at least -- off your
back.
First, some definitions. Defamation is any comment
that holds a person or a company up to scorn, ridicule
or contempt; injures them or their business; or
accuses them of a crime. Libel is the written form of
defamation, and slander is the spoken type.
Here's a guide to what you can say about your favorite
investment or short position while reducing the risk
of a defamation suit:
* Truth Truth is the fireproof defense against
defamation. You are permitted to say anything that is
true, regardless of how bad it makes a company look.
* Opinion Here again, the law gives you a lot of
latitude to say what's on your mind. "The Supreme
Court has said that there is no such thing as a false
idea," explains Susan Buckley, a First Amendment
lawyer with the New York law firm of Cahill, Gordon &
Reindel. "You can only defame someone by utterance of
a false fact." So you can have an opinion, and it does
not have to be correct. But to be protected, your
opinion has to be based on facts, at least loosely.
How loosely? This is where you get into a gray area,
but again, you have some wiggle room. "Generally, you
can get off the hook so long as the facts are
correct," says Floyd Abrams, also a First Amendment
attorney with Cahill, Gordon & Reindel. "You have to
have some underlying fact that is related to your
opinion. But you get a lot of leeway."
For example, a person who noticed that revenues
declined moderately for two quarters at a company and
then said they think it is going to go out of business
soon, would probably be protected, Abrams said.
Often, though, to be protected you need to state the
facts at the same time you state the opinion. And if
you know your opinion is wrong at the time you state
it, you will lose in a lawsuit - if the complainant
can prove that you knew this, of course.
* Predictions Likewise, forecasts are usually
protected, because it is impossible to say whether a
prediction is true or false at the time it is made.
* Exaggeration You also enjoy an exemption for tall
tales, known as "rhetorical hyperbole." If you say
"this is the worst company in history," for example,
you are protected, because it is obviously an
exaggeration, and a statement that can not be proven
right or wrong.
* Public figures You also get extra protection when
you say negative things about a "public figure." To
win a libel suit, a public figure has the additional
burden of proving that a statement was made with
malice, in addition to being defamatory and false.
"Malice" means the writer intended to injure, and
either acted with knowledge that the statement was
false, or acted with "reckless disregard" for whether
the statement was true. So you can make defamatory and
untrue statements about a public figure, but if they
were not made with malice, you are off the hook. A
non-public figure only has to show that the statement
was defamatory and untrue.
The tricky part here is that not all companies are
considered public figures. "The law looks at the
degree to which the business has become involved in
public debate about matters of public interest," says
Abrams. All cigarette companies, for example, are
public figures. "But a company that makes a product
that is not inherently controversial may be a private
figure." The more a company tries to attract business
by advertising, however, the more likely it is to be a
public figure. "But the law is still developing," says
Abrams. "It is still in a chaotic state on this
question."
* Public forum And don't forget that a website is a
public forum -- not to be confused with more private
forms of communication like the telephone. This
matters because it has an impact on the amount of
damages you can be sued for. When asking for money
from defendants, a company has to demonstrate how much
damage was done. It is easier to show that defamation
in a public forum, as opposed to a private
conversation, harmed the company.
* Wired world The issue of defamation on the Internet
raises the thorny question of where something is
actually published when it appears online. Courts,
though, are quickly lining up on the side that says if
a statement or Website appears somewhere, it appears
everywhere.
This means that writing comments on the Internet
exposes you to libel laws around the world. And that's
a problem, because many legal systems don't protect
you as much as in the U.S. Take the U.K., for example.
"All the plaintiff must show is that he was defamed,"
says Ed Mishkin, a lawyer for Cleary, Gottlieb, Steen
& Hamilton in New York. "Then it is up to the
defendant to show the statement was true." In the
U.S., the plaintiff has the challenge of proving the
statement false. What's more, in the U.K. there is no
higher test for public figures, like in the U.S.
That explains, of course, why many lawyers chose to
sue international publications for libel in the U.K.,
rather than in the U.S. And there is no reason to
think it would be any different when it comes to the
Internet.
For more Webformation:
Discuss what you can and can't say online in our
Briefing Room at
http://www.pathfinder.com/cgi-bin/boards/read/267/4
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