A lawsuit involving a New Jersey maker of high-tech health-care equipment and a vocal Prodigy user is highlighting the fuzzy lines that participants of online services may cross when "discussing" a company's performance.
MEDphone Corp. is suing Peter DeNigris in New Jersey Federal Court for making disparaging online comments that supposedly sent MEDphone's public stock price plummeting. MEDphone, which makes a device that enables cardiac specialists to jump-start heart attack victims immediately over phone lines, claims that DeNigris's verbal attacks on Prodigy plunged the previously healthy company into serious financial trouble.
Almost as soon as the online community became interested in the MEDphone case, the Electronic Frontier Foundation issued a statement that the suit was of little significance because Prodigy itself was not sued by MEDphone. DeNigris, like any other person, can be sued for his own libelous statements whether online or off.
But despite EFF's clarification of libel law, the online services industry continues to watch the MEDphone case keenly. Its interest was further stirred when DeNigris's law firm recently delivered subpoenas to Prodigy, asking for contact information for some other participants in the Money Talk section where DeNigris made most of his comments. Prodigy turned over the requested information with little hesitation.
Tom Chansky, DeNigris's attorney, says he only sought affidavits showing that DeNigris's comments were not taken seriously enough by other Money Talk participants to distort the price of publicly traded MEDphone stock. But after delivering the subpoenas, he noticed an insidious side effect: The previously lively discussion of MEDphone in the Money Talk section immediately died off. As we go to press, DeNigris is pondering a First Amendment counterclaim against MEDphone, alleging that MEDphone may well have engineered the chilling effect.
Another question raised by the MEDphone suit is the market power of seemingly innocuous online discussions. Does this case signal the opening of a major fault line in the stability of the securities markets? Do large online services such as Prodigy give anyone with a modem and an opinion - including possibly meddlesome brokers - the ability to shoot down stock prices of companies like MEDphone with a disapproving word or two? If a New York firm makes an offer on a national online service aimed at other New Yorkers, will receipt of that information by callers from other states bring those states' securities laws into play? When callers to a bulletin board system share their opinions about investment matters online, at what point do their activities constitute the rendering of investment advice, and thus require federal registration? There are no clear answers in sight, though a profusion of such questions is assured.
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