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News and Insights

Legal Developments In Cyberspace

January 1995

Several recent cases involving activities on the Internet and online services illustrate the diversity and complexity of issues that this technology can be expected to raise for the U.S. legal system. We believe that the cases discussed below represent the first of a new wave of legal issues that will arise in the context of online technology.

United States v. Thomas and United States v. LaMacchia. The Thomas case involves the pornography convictions in Tennessee of a Milpitas, California couple who ran a California-based online bulletin board. Pornographic images were downloaded from the Thomas’ bulletin board in California by postal authorities, and the prosecutor used local Tennessee “community standards” to obtain the conviction. Taking the case to its logical extreme, every sexually explicit bulletin board must limit its content so as to satisfy the standards of the most “conservative” community in the nation, or risk being prosecuted in that jurisdiction. The First Amendment implications of the Thomas case are particularly disturbing, in that Federal authorities apparently used their power to orchestrate the case so that it would be brought as far away as possible from the residence of the defendants and in a jurisdiction with the highest likelihood of conviction. Perhaps the proper “community standard” to be applied to online services should be that of the “online community,” rather than that of the smallest and most conservative “geographical” community prosecutors can find. This case is already having a chilling effect on activity on the Internet. Carnegie Mellon University has announced that it will censor numerous Internet newsgroups relating to sexuality, citing fears of legal liability as justification.

The LaMacchia case involved allegations that a 21 year old MIT student used MIT’s internet access to facilitate the illegal copying of popular commercial software programs. Those who had software were encouraged to upload their programs, and those who didn’t were permitted to download the programs. The case would hardly be worthy of comment, except for one thing: Mr. LaMacchia neither sought nor received any financial benefit from his activities.

There is no question that this conduct violated civil U.S. copyright laws, and that a civil action by the owners of the programs would have been appropriate. However, LaMacchia did not have the ability to pay the estimated $1 million in losses resulting from his actions, and therefore such a case would be to no purpose. LaMacchia could not be prosecuted under the criminal copyright laws, since those laws expressly require that a defendant have sought to personally profit from his actions and, as noted above, LaMacchia had not done so.

The U.S. attorney’s office in Boston tried to plug this legal loophole by indicting LaMacchia under the federal wire fraud statute. The federal judge to whom this case was assigned dismissed the case, noting that this was an attempt to “pour new wine into an old bottle.” Seemingly, the loophole in the criminal copyright laws that led to this result had gone virtually unnoticed until now. Apparently, lawmakers did not anticipate that someone might engage in this type of activity with a motive other than personal gain.

Stratton Oakmont Inc. v. Prodigy Services Inc. In this case a New York investment banking firm has filed a $200 million complaint against Prodigy, one of the largest commercial online systems. The suit was filed after a Prodigy user published a statement on Prodigy to the effect that Stratton’s actions relating to a public stock offering were criminal and fraudulent. This defamatory statement (crediting Stratton’s claim that it is false) remained on Prodigy for 19 days.

Given the fact that there is almost no legal precedent involving online libel, this case raises fascinating questions regarding the liability of online services. Can Prodigy and other online services, such as Compuserve and America OnLine, be held liable for statements of their users when statements can be published and read by thousands of people instantly? Does the fact that Prodigy automatically screens its postings to eliminate obscenities mean that it should be subjected to a higher standard of care than might apply to a service that performs no screening? If an offended party complains to an online service, must the service remove the statement and investigate? How does the law apply to the Internet, which is “owned” by no one and where information is routed through many different computers? And how will the same questions be answered in the many other countries served by the same online providers? In the absence of legislation, these and other questions can only be answered on a case-by-case basis. In the meantime, online services have little or nothing in the way of guidance to rely on in providing their ever expanding services to a larger and larger number of users worldwide.