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Nearly every public company in the United States is the involuntary single subject of an Internet message board, where anybody with online access can spread information and commentary about the company to a worldwide audience — anonymously and for free. The message boards are usually operated by third-party Internet companies, such as Yahoo Inc., which impose minimal restraints on the contents of the postings and display readily accessible archives of postings for years. The posters almost always assume pseudonyms; it may take a subpoena to learn a poster’s true identity. The subject public company is often precluded by federal securities laws from making responsive postings on the board. Many attempts by public companies to sue individual posters for defamation and related torts have been swiftly dismissed by the courts on free speech grounds. However, an important recent decision in MCSi, Inc. v. Woods, 2003 WL 554638 (N.D. Cal. Feb. 25, 2003), establishes that such lawsuits can proceed if the poster turns out to be a business competitor seeking to injure the subject company’s image or prospects. (Editor’s note: The authors represent MCSi Inc. in the above case.) A company chat board can become a wide-open forum for investors, employees (current and former, disgruntled and otherwise), vendors and business competitors to have their say — to the world and back and forth to each other — about the company, its management, its market and its past deeds and future prospects. Some postings are truly insightful and fact-filled, perhaps attaching a periodical article or a U.S. Securities and Exchange Commission filing by the company. More than a few companies stung by the criticism or outright lies of some posters have taken legal action against the electronic gadflies. As indicated above, in many cases, courts have protected the free speech rights of the posters. See, e.g., Doe v. 2TheMart.com, Inc., 140 F.Supp.2d 1088 (W.D. Wash. 2001); Dendrite Int’l, Inc. v. Doe No. 3, N.J. Super. 134, 755 A.2d 756 (N.J. App. 2001). In California, the anti-SLAPP statute (California Code of Civil Procedure 425.16) provides extra procedural safeguards against private lawsuits that have the effect of chilling free speech. Using the anti-SLAPP statute, a defendant can obtain a quick dismissal of a suit, plus recover attorneys fees, without the plaintiff having any opportunity to discover evidence that might support the claims. Internet posters have used the anti-SLAPP statute successfully. Certain case law holds that if the poster is perceived as “speaking as an investor” — even if the poster is not in fact an investor — then the poster is essentially immune from a defamation claim. See ComputerXpress, Inc. v. Jackson, 93 Cal.App. 993 (2001); Global Telemedia Int’l, Inc. v. Doe 1, 132 F.Supp.2d 1261 (C.D. Cal. 2001). This rule is tied to two perceptions: one, that public companies, with their relatively strong influence on the broader economy and their thousands of shareholders, are subjects of inherent public interest and properly topics of published commentary; and two, that Internet message boards are so free-wheeling and informal that no reasonable reader expects to find facts in anyof the postings, such that no company can be defamed by the postings. The truth of these perceptions — particularly the latter — is debatable. Some posters and postings do have an impact. No less venerable a source than The Wall Street Journalhas acknowledged that Internet message boards devoted to particular companies can provide important, detailed information about the companies (albeit along with false information and hyperbolic rhetoric). The MCSi case, presided over by U.S. District Judge Jeremy Fogel, involves “two of the largest audio-visual companies in the country” — plaintiff MCSi Inc. and defendant The Whitlock Group, which “are direct competitors.” Robert Woods, a co-defendant, was an employee of MCSi’s predecessor company who left to become an employee of Whitlock. Within days of taking the job with Whitlock, Woods, using the pseudonym “CheapAV,” began making inflammatory and disparaging postings about MCSi on the Yahoo message board dedicated to MCSi. At first, Woods posed as a mere investor who was informed about the AV industry, but he later admitted to being an anonymous competitor of MCSi. “Cheap�AV” developed a sort of following and was influential with some chat board readers (although reviled by others). MCSi learned Woods’ true identity and sued him and Whitlock for defamation, unfair competition and other torts related to a broader scheme of stealing away MCSi employees and customers. Invoking 425.16, as had other Internet posters in the past, Woods attacked MCSi’s litigation as a Strategic Lawsuit Against Public Participation, or SLAPP, aimed at suppressing Woods’ free speech. Woods demanded that the suit be dismissed with prejudice, and that MCSi be forced to pay Woods’ attorneys fees and costs. However, unlike previous Internet commentators, Woods lost the motion and will have to defend against MCSi’s claims on the merits. Judge Fogel recognized that the MCSi message board was a “public forum,” like a public park or sidewalk, where people can speak freely. However, Judge Fogel did not find that Woods’ postings were made “in connection with a public issue” and thus specially protected by the law. Judge Fogel reasoned as follows: “The most reasonable characterization of Woods’ postings in this case is speech by a competitor about a competitor. Woods is an employee of Whitlock. The postings at issue were made from Woods’ Whitlock office computer and for the most part were made during standard business hours. Moreover, MCSi alleges specifically that Whitlock senior executives were aware that Woods was making the allegedly defamatory postings and encouraged the misbehavior. ” As commercial speech, Woods’ postings are not a matter of public interest. Woods thus has failed to make a threshold showing that the challenged causes of action arise from protected activity. Accordingly, the court need not determine whether Woods has met the other requirements of the [anti-SLAPP] statute.” (Emphasis added.) This ruling is a great victory for public companies being harassed by their competitors online. The decision establishes that a public company will be able to have its day in court to seek remedies for the sabotage of offensive Internet postings made by a competitor, perhaps an overzealous employee of the competitor. There have been previous decisions holding generally that one company’s speech about a competitor company is not entitled to the same level of First Amendment protection as “political” speech (see Florida Bar v. Went For It, Inc., 515 U.S. 618 (1995)), and this principle has been applied specifically in the context of an anti-SLAPP motion. See Globetrotter Software, Inc. v. Elan Computer Group, Inc., 63 F.Supp.2d 1127 (N.D. Cal. 1999). However, the trend in cases where the speech was made on Internet message boards had been negative for the subject companies. One federal trial court in California ruled that essentially everythingposted on a chat board devoted to a public company — no matter who the poster was — was immune from defamation claims, because “the general tone and context of these messages strongly suggest that they are the [non-actionable] opinions of the posters.” Global Telemedia Int’l, Inc. v. Doe 1, 132 F.Supp.2d 1261, 1267 (C.D. Cal. 2001). The Global Telemediacourt insisted, perhaps defensively, that “this holding does not � necessarily foreclose defamation cases against individuals.” Additionally, a California state court protected the owners of a company, which had been in aborted merger discussions with a public company, from potential liability for negative and disparaging remarks about the public company posted online because “the tenor of the messages indicates that defendants were speaking ‘as investors’ rather than competitors, as the comments in the messages appear to have been directed at existing or potential shareholders rather than potential customers.” ComputerXpress, 93 Cal.App.4th 1008. In the view of that court, not just the source but the apparentsource of the comments — competitor or investor — determined whether the comments themselves concerned matters of public interest. The MCSi decision makes the rules of litigation in this area more reasonable and fair. Public companies should look to this decision for support when exposing aggressive Internet saboteurs. If the poster is a business competitor and is making false and defamatory assertions of fact about the subject company, the poster should have to defend himself or herself on the merits and face the appropriate consequences. Ian C. Ballon is a partner in the Palo Alto and Los Angeles offices of Manatt, Phelps & Phillips. Jonathan M. Eisenberg is a Los Angeles associate. Both are in the firm’s intellectual property and Internet practice group. Ballon can be reached at [email protected], and Eisenberg can be reached at [email protected]. Practice Center articles inform readers on either developments in substantive law, practice issues or law firm management. Contact News Editor Candice McFarland with submissions or questions at [email protected]or go to www.therecorder.com/submissions.html.

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