Bad Chat and Cybersmears

Many companies battle the effects of bad chat and cybersmears — disparaging material posted on the Internet's many bulletin boards, message boards, newsrooms, and other common areas. These battles often result in lawsuits for defamation, business disparagement, tortious interference with a contract or business relationship, or unfair business practices.

A lawsuit, however, may not be the most effective recourse because of protections afforded by the Communications Decency Act of 1996 (CDA) and the relatively shallow pockets of the typical cybersmearer. In addition, a company that reacts publicly may make things worse by raising awareness of the damaging statements. When you consider your response to defamatory Internet postings, first consider your objectives. Positive and preventative actions will usually lead to faster and better solutions.

In the early 1990s, plaintiffs seeking redress for online defamation brought suits against Internet service providers rather than individual authors because authors are typically anonymous and generally financially unattractive compared with a business. With lawsuits mounting, Congress enacted the CDA, which established a level of immunity for interactive computer service providers and users, and shielded service providers from liability for distributing material over the Internet. (In other jurisdictions, such as England, service providers are held liable as publishers.)

With the CDA, lawsuits in the US became a much less promising remedial tactic for companies, but they did become an effective means of identifying anonymous authors. Because Internet service providers are required to reveal the identity of subscribers upon receipt of a subpoena, and because they themselves enjoy legal immunity, they are increasingly forthcoming. Many plaintiffs are naming "John Does" as defendants, then using the subpoena process to identify the source of damaging material.

Companies often find that their defamers are current or former employees. In these cases, companies prefer to deal with such individuals within the structure of the employer-employee relationship. Generally, employees are terminated or quit due to embarrassment. In most cases, once the author is discovered or confronted, the dissemination of the material is discontinued.

A Pound of Cure
Literature on bad chat and cybersmears illustrates a remedial action plan with minimal focus on preventative measures. The recommended steps include:

1. Implement a mechanism to monitor the Internet for bad chat.
2. Counsel employees not to discuss the company online.
3. Develop a communications response plan with the advice of counsel. This plan may include tactics to identify the anonymous poster; to send this person or the interactive computer service provider a notice to cease and desist the material in question; to ask for an admission and apology; and to post a response to clarify misinformation or respond to allegations.
4. File an action for damages and injunctive relief, and notify the Securities and Exchange Commission.

There are several pitfalls associated with the plan described above. To begin, it is costly to employ personnel with the skills to monitor the Internet effectively, and counseling employees not to discuss the company online is, at best, an expression of distrust. The remaining recommendations involve instigating legal action, and these options should be approached with caution. While it is wise to seek legal counsel when bad chat spooks investors, legal action may not bring the desired results.

When deciding whether to bring a legal action, company executives must have a clear understanding of what results will help and what will hurt. They must also have a comprehensive understanding of their options and the full sequence of consequences that could accompany each potential action. For example, if quieting Internet authors is the sole objective, obtaining a subpoena may be an effective tactic. But since this can be done only upon filing a lawsuit, a very public "Goliath attacking David" scenario could ensue. A simple request made to the Internet service provider might be just as effective.

In some circumstances, a company's best interest can be served only by initiating a lawsuit for defamation and related claims. These lawsuits can be slow, expensive, and unreliable because monetary damages are difficult to quantify and awards cannot directly remedy the loss. Further, injunctive relief is rarely granted because restraints on speech are considered to violate the First Amendment; thus, the typical "successful" result does not compensate the company for the injury.

In lieu of (and sometimes in addition to) bringing legal action, a company may decide to make a counterdisclosure. While this seems to be a relatively quick and effective positive action, it is important to remember that like a defamatory message, a counterdisclosure may influence investors and raise their legal activity. It is critical that counterdisclosures are accurate, complete, and in compliance with SEC regulations regarding dissemination and maintenance. The company should consult legal counsel and public relations experts before disseminating any information over the Internet, particularly when the interest of investors has been keen.

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