Internet Defamation Suit Ends With Defense Verdict

R. A. Hettinga rah@shipwright.com
Mon, 5 Aug 2002 13:22:55 -0400


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Status: RO
To: rah@philodox.com
Subject: Internet Defamation Suit Ends With Defense Verdict
Date: Mon,  5 Aug 2002 10:08:41 -0400 (EDT)
From: Somebody

Internet Defamation Suit Ends With Defense Verdict

http://www.law.com/servlet/ContentServer?pagename=OpenMarket/Xcelerate/View&c=LawArticle&cid=1028320303259&t=LawArticleTech

John Council
Texas Lawyer 08-05-2002



In one of the first trials in the country to
address Internet defamation, a Dallas County,
Texas, jury last week rejected a $700 million
suit by an Internet company that claimed it
was harmed by negative electronic messages
posted by an employee of a competing company.

ZixIt, a Dallas Internet company, filed ZixIt
Corp. v. Visa International, et al. in 1999,
alleging it was harmed by Paul Guthrie, then
a vice president with Visa. ZixIt alleged in
its suit that Guthrie posted more than 400
anonymous messages, many of them negative,
about ZixIt on the Yahoo Finance ZixIt Internet
message board, causing ZixIt's stock price to
drop.

The suit also alleged that the postings
destroyed the company's ability to market
its ZixCharge Internet transaction
authorization system, which allows consumers
to make purchases without revealing their
credit card numbers to merchants. Visa has
a similar Internet payment system.

ZixIt alleged that the postings caused its
stock price to plummet. Had the product
been successful, the company believed it
would have been worth more than $1 billion,
according to lawyers involved in the case.

On July 31, a jury in Judge Merrill Hartman's
192nd District Court found that ZixIt's
product was not harmed by the postings.

Neal Manne and Kenneth McNeil, lawyers from
Houston's Susman Godfrey who represented
ZixIt at trial, did not return calls for
comment by press time.

"The company hasn't made any decision about
an appeal," says Cindy Lawrence, a ZixIt
spokeswoman. "The outcome of the lawsuit
doesn't have any effect on our future
products and services in e-messaging."

GETTING GRADED

Visa's lawyers alleged that Guthrie acted on
his own and had a right to free speech, and
that Guthrie's Internet postings had no
effect on ZixIt's stock. Guthrie has since
left Visa, lawyers for the company say.
Guthrie was not a defendant in the case.
However, his interests in the case were
represented by Todd Noonan, an attorney in
Sacramento, Calif.'s Stevens & O'Connell.
Noonan was recovering from surgery last
week and was unavailable for comment.

"I think people believe whether you
succeed or fail [is] because of what you
do and not what other people do to you.
Internet companies didn't succeed for all
sorts of reasons," says Jeff Tillotson, a
partner in Dallas' Lynn, Tillotson & Pinker,
who defended Visa at trial.

ZixIt's case was a hard sell to the jury,
especially with the reality of the economy,
Tillotson says.

"Everyone knows that the stock market
has fallen and the trouble with Internet
companies. I think the jury took that into
account," Tillotson says.

There were lessons to be learned from the
Internet defamation trial, says Mike Lynn,
who also represented Visa at trial. Even
though message boards are considered a
protected form of free speech, that freedom
won't prevent a company from being dragged
into court if its employee blasts another
company on the Internet, Lynn says.

"A company can be responsible for what an
employee posts on a message board," Lynn
says. "The courts have said you're entitled
to go to a jury to determine whether there
are damages as a result of that. The law is
very odd, not mature, [and] damage theories
are not mature."

The nature of the case also added an
interesting twist to the trial, Tillotson
says. Many of those who posted messages on
the board attended the trial and posted
comments about the daily proceedings
throughout the three-week trial, he says.

"It was apparent to everyone that many of
the people who posted on these message boards
were watching the trial," Tillotson says.
"It really was wild. The lawyers felt like
they were being graded."

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R. A. Hettinga <mailto: rah@ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'