17 Feb 2000

By CARL S. KAPLAN

Companies Fight Anonymous Critics With Lawsuits

Late last December, someone began posting unflattering comments about the chief executive of Wade Cook Financial Corp. on one of Yahoo's popular message boards, using a pseudonym.

The targeted company, a Seattle-based firm that offers financial education seminars, did not know who its critic or critics were. And Yahoo declined a request to remove the postings, a Wade Cook spokesman said.

So the company decided to fight back. Earlier this week it filed a libel lawsuit in federal district court in Seattle, charging 10 "John Does" with defamation. It expects to serve subpoenas on Yahoo in an effort to unmask the anonymous speakers and add their real names to the lawsuit.

"We filed the suit to find out who these people are, and also to deter others from defaming CEOs of other companies," said Kiman Lucas, general counsel of Wade Cook Financial.

The suit is another in a string of similar efforts by companies who say they are the victim of "cybersmears" -- false and disparaging rumors about a company or its stock posted on the Internet.

These disputes over online criticism are a problem that is out of control and likely to get worse, said Blake A. Bell, a lawyer with Simpson Thacher & Bartlett in New York who specializes in securities law and the Internet.

Bell said he knew of 23 lawsuits involving online attacks on companies, 15 of which were filed in the last year. Typically, the lawsuits name "John Does" as defendants and seek to use a court's power to find the identities of alleged defamers and pursue claims against them.

Experts on civil liberties and privacy caution that the cybersmear lawsuit trend highlights a conflict between the rights of individuals to speak anonymously on the Internet and a corporation's need to protect its reputation.

"It's a tough problem," said Marc Rotenberg, director of the Electronic Privacy Information Center, an Internet privacy group. "There is a long-running tension in the cyber world -- a battle between anonymity and accountability."

"One problem is that if we make it too easy to get at the identity of the anonymous person who engages in libel, we also make it easy to get at the anonymous whistleblower," Rotenberg said.

Other companies that have recently filed cybersmear suits range from good-sized companies like Philip Services Corp. of Hamilton, Ontario, to a small tropical resort in the Caribbean that said it was falsely accused of unsafe scuba diving practices, Bell said.

Last week, Raytheon Corp. went to court in Cambridge, Mass., against individuals who anonymously posted messages on Yahoo that the company claims revealed trade secrets. The Yahoo site features several thousand message boards, many focused on individual stocks.

Securities regulators have also taken notice. Beginning about six months ago, the Securities and Exchange Commission started getting one to two calls a day from victims of corporate cybersmears, said Duncan King, a spokesman for the commission.

"We have not brought any cybersmear cases, but it is something we are looking at right now," he said, adding that he could not comment on specific investigations. "It's an area of concern for us," he said.

Lawsuits are not necessarily the best answer to the problem, said Bell, who has written about online defamation for the legal publication Wallstreetlawyer.com. For one thing, a legal battle can easily escalate into a public relations nightmare for the company, pitting Goliath against David, he said.

Also, lawsuits are costly, and victorious plaintiffs may not be able to collect large damages from their online critics, who may have modest means. And as a practical matter, the Internet-savvy can cover their tracks very well, making detection of their true identities impossible.

Bell said that depending on the nature of the posted comments, alternative solutions would be for a company to monitor financial chat rooms and be prepared to issue a press release scotching Internet rumors.

Lucas, the Wade Cook Financial lawyer, said her company had no choice but to bring a lawsuit because the firm's reputation was at stake.

On or about Dec. 31, 1998, according to legal papers, at least one anonymous individual using the alias "Delusional5" posted a message that said that Wade Cook, the chief executive of Wade Cook Financial, had been "investigated and charged" by the SEC for hyping stocks and getting kickbacks from touted companies. Another message said Cook had been "arrested" for kickbacks.

The company said in its court filings that both comments were false and defamatory, and that the defendants acted with "malice."

In an interview, Lucas said that in SEC filings, the company has disclosed that it was investigated by the SEC, but that no formal actions or charges have been made.

A spokesman for Yahoo declined to comment on the lawsuit, citing company policy. The spokesman did say, however, that while Yahoo protects the privacy of its subscribers, it does comply with court subpoenas.

Eben Moglen, a professor at Columbia Law School who is an expert in cyberlaw, said he thinks the various cybersmear lawsuits may have a paradoxical impact. The suits may prompt people to use various cloaking technologies to express themselves more securely and anonymously on the Internet.

"Anonymity is a valuable commodity in social terms, and its hard to imagine that anonymity will not take vast steps forward in the years to come," he said.

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