California Appeals Court Upholds Free Speech Right to Criticize Public Companies on the Internet

Nov. 26, 2001

California Appeals Court Upholds Free Speech Right to Criticize Public Companies on the Internet

Court Agrees with Public Citizen That Decision Should Have Precedential Effect Protecting All Californians

WASHINGTON, D.C. — A California appellate court has decided for the first time that criticism of public companies on Internet message boards are protected from frivolous litigation by California?s anti-SLAPP statute. This echoes the position taken by Public Citizen — that companies should not be permitted to use lawsuits, or the threat of lawsuits, to silence Internet critics.

In March 2000, Computer XPress, a California company that sells computer-related products, sued one of its competitors over, among other things, criticisms expressed on Internet bulletin boards and in a complaint to the SEC. The trial judge decided that none of the issues in the case pertained to issues of public interest that were within the protection of the anti-SLAPP statute (Strategic Litigation Against Public Participation). That law recognizes that First Amendment rights are threatened by the financial hardship and chilling effect of defending a frivolous lawsuit.

Under the law, cases filed to deter public participation must be dismissed immediately, and the plaintiff (usually a company) must pay the defendant?s attorney fees unless the company can show a reasonable probability that it can win the case. The promise of a quick dismissal, with a payment of attorney fees, was seen by the California legislature as critical to ensuring that people would not refrain from speaking to avoid a lawsuit even if they could win their cases in the end.

In an unpublished decision issued earlier this year, the Court of Appeal in Riverside decided, in agreement with a Los Angeles federal trial judge, that statements made on an Internet bulletin board about a company whose stock is publicly traded are a matter of public interest and thus are protected by the anti-SLAPP statute. The court further decided that the mere fact that the speaker may be a competitor of the plaintiff does not mean that it is not expressing its free speech rights.

Attorneys for Public Citizen, which had not previously been involved in the case, intervened to ask the Court of Appeal to publish its decision so all citizens of California could benefit from the holding. Under California law, unpublished appellate decisions cannot be cited as precedent, but published rulings of an appellate court in one part of the state are binding on state court trial judges throughout the state.

In a Nov. 15 decision, the court reconsidered its prior ruling and decided to make its position binding precedent. The new ruling is Computer XPress, Inc. v. Jackson, No. E027841 (Cal. App., 4th Dist. Div. 2).

The ruling represents an important protection of the public?s free speech rights, said Public Citizen attorney Paul Alan Levy, who has defended a number of individuals sued over their Internet postings.

“Many public companies have used litigation and the threat of litigation to intimidate individual investors and other members of the public who might have the audacity to criticize them,” Levy said. “It is too easy for companies to allege that their critics are ill-motivated as a way of avoiding coverage by the anti-SLAPP statute.”

In that same opinion, the Court of Appeal reconsidered its original decision that, if even one part of a complaint can be upheld as outside the protection of the anti-SLAPP statute, the defendants lose their right to have their fees paid by the plaintiff. Under the new ruling, fees must be paid for that part of the case that has been stricken under the anti-SLAPP statute.

“This part of the ruling forces companies to choose their claims carefully and sue a critic only when they are sure that they have a good chance of proving that the speaker abused his free speech rights,” Levy said.

The defendants in the Computer XPress case were represented by Yvonne Renfrew, a lawyer in Los Angeles. Public Citizen asked to have the ruling published because the organization champions free speech rights. Public Citizen recently represented two people who posted criticisms about Hollis-Eden Pharmaceutical Company on a Yahoo! bulletin board. The rulings in that case, which supported Public Citizen?s position, are on appeal.

In another Public Citizen case, Dendrite International v. Doe, the New Jersey Appellate Division decided in July that a corporate plaintiff cannot learn the names of its Internet critics unless it can prove that its complaint has a reasonable chance of success that outweighs the critics? First Amendment right to speak anonymously. Public Citizen?s Internet free speech cases can be viewed on its Web site.

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