New York Law Journal, April 21, 1995

A case pending before the Nassau County supreme Court presents the more difficult scenario where it is alleged that the system operator did in fact exercise some degree of editorial control over its electronic bulletin boards. Unlike the system operator in Cubby, the system operator in Stratton Oakmont v. Prodigy Services Inc. (No. 94-031063) (Sup. Ct. Nassau County filed Nov. 7, 1994) markets itself as a family-oriented service that screens obscene and offensive material from its bulletin boards. In this context, an individual posted several messages onto one of Prodigy's financial bulletin boards alleging that Stratton Oakmont had fraudulently concealed material information in a public offering for Solomon-Page group Ltd. The messages remained on the board for 19 days.

The degree of editorial control exercised by Prodigy (as contrasted to the complete lack of editorial control exercised by CompuServe in Cubby) could lead the court to find that the system operator acted as more than a "newsstand or bookstore" and therefore should be liable for the defamatory language. If this is the result, it would suggest that an advertiser with a site that permits viewers to post materials could be liable for defamation if it exercises editorial or censorship functions.

Vicarious Liability for Copyright and Trademark Infringement by Site Visitors. One court has already held that vicarious liability exists for acts of copyright and trademark infringement by system users. In <=2> Playboy Enterprises Inc. v. Frena, 839 F. Supp. 1552 (M.D. Fla. 1993), the relevant facts involved an electronic bulletin board operated by Frena on which were posted several unauthorized copies of photographs owned by Playboy Enterprises Inc. Frena claimed that the photographs were uploaded to, and downloaded from, the bulletin board by subscribers and that he was unaware of the infringing actions.

The court found Frena liable for copyright infringement because intent to infringe and knowledge of infringement are not necessary elements of the tort. The court also found Frena liable for trademark infringement because the registered trademarks Playboy and Playmate were used to identify the files containing some of the photographs and, as with copyright infringement, intent to infringe and knowledge of the infringement are not necessary elements of the tort. Lastly, the court found that Frena had unfairly competed with Playboy Enterprises Inc., thereby violating @43(a) of the Lanham Act.

Frena seems to create a dilemma for those sponsoring sites in cyberspace in that if they exercise the editorial control necessary to avoid liability for claims of copyright and trademark infringement, they might be exposing themselves to vicarious liability for acts of defamation by site visitors.

Vicarious Liability for Adult Material Posted by site Visitors. Sexually explicit text and images are rampant throughout cyberspace and, if posted to an advertiser's site, could create vicarious liability. Most states have enacted legislation criminalizing the "promotion" of obscene materials; they define the term "promotion" broadly to include exhibiting, distributing and advertising.

Indeed, the federal government has even enacted statutes aimed at obscene matters <=3> 18 USCA @1465 (1984) prohibits the interstate transportation of obscene matter for sale or distribution, and <=4> 47 USCA @223 (1991) prohibits obscene communications through telephone lines. Although such statutes are generally used against adult bookstores and peep-show establishments, they could be applied, and in at least one case have been applied, to cyberspace activities.

Robert and Carleen Thomas, a couple residing in Milpitas, Calif., were found guilty in a federal court in Memphis, Tenn., last July of transmitting obscene material through telephone lines and were sentenced to at least two-and-a-half years in prison. This case, now under appeal to the United States Court of Appeals for the Sixth Circuit has outraged civil libertarians, because the court convicted the California couple by applying Memphis community standards of obscenity (the images were downloaded by a computer operator in Memphis, thereby providing the jurisdictional predicate) rather than the potentially more liberal community standards of Milpitas calif.

A statute specifically aimed at "cleaning up" cybersapce is under Consideration in the Senate. The recently proposed COmmunications Decency Act of 1995, S. 314, 104th Cong., 1st Sess. (1995), which was introduced by senators James Exon, D-Neb., and Slade Gorton, R-Wash., is reportedly drafted broadly enough to make persons involved in transmitting cyberspace ads conversations and data containing pornography, nudity or obscenities subject to fines of up to $ 100,000 and two years in prison for each violation.


Our journey into cyberspace has just begun. We have barely scratched the surface in attempting to define some risks involved in the use of the Internet and commercial on-line services. In addition to considering advertising issues and risks, we must consider and design appropriate safeguards for actual business transactions. Paperless contracts, for example, will become a reality only after mechanisms are designed to prevent the fraudulent alteration of digitalized contracts. Owners of intellectual property assert that they need better protection for work posted on the Internet and demand mechanisms to monitor customer usage to ensure proper compensation. Celebrities seek protection against violations of their right to privacy. Perhaps most important, we need to adopt jurisdictional and choice-of-law rules in an era where global transactions will become more commonplace and where an individual's legal rights and obligations will vary from jurisdiction to jurisdiction. As we progress further into the virtual reality described in Neuromancer, the issue and risks will become increasing complex.