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Dendrite International, Inc. v. Doe

July 11, 2001

DENDRITE INTERNATIONAL, INC., A NEW JERSEY CORPORATION, PLAINTIFF-APPELLANT,
v.
JOHN DOE NO. 3, DEFENDANT-RESPONDENT, AND JOHN DOES NOS. 1, 2 AND 4, AND JOHN DOES 5 THROUGH 14, INCLUSIVE, DEFENDANTS.



On appeal from Superior Court of New Jersey, Chancery Division, Morris County, Docket No. MRS-C-129-00.

Before Judges Stern, A. A. Rodriguez and Fall.

The opinion of the court was delivered by: Fall, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued: May 22, 2001

In this opinion, we examine the appropriate procedures to be followed and the standards to be applied by courts in evaluating applications for discovery of the identity of anonymous users of Internet Service Provider (ISP) message boards.

Information contained in postings by anonymous users of ISP message boards can form the basis of litigation instituted by an individual, corporation or business entity under an array of causes of action, including breach of employment or confidentiality agreements; breach of a fiduciary duty; misappropriation of trade secrets; interference with a prospective business advantage; defamation; and other causes of action.

Plaintiff, Dendrite International, Inc. (Dendrite), on leave granted, appeals from an interlocutory order of the trial court denying its request to conduct limited expedited discovery for the purpose of ascertaining the identity of defendant, John Doe No. 3, from Yahoo!, an ISP. Here, the posting of certain comments about Dendrite on a Yahoo! bulletin board by defendant, John Doe No. 3, forms the basis of the dispute in this appeal in the context of a cause of action based on Dendrite's claims of defamation.*fn1 We affirm the denial of Dendrite's motion based on the conclusion of the motion judge that Dendrite failed to establish harm resulting from John Doe No. 3's statements as an element of its defamation claim.

We offer the following guidelines to trial courts when faced with an application by a plaintiff for expedited discovery seeking an order compelling an ISP to honor a subpoena and disclose the identity of anonymous Internet posters who are sued for allegedly violating the rights of individuals, corporations or businesses. The trial court must consider and decide those applications by striking a balance between the well-established First Amendment right to speak anonymously, and the right of the plaintiff to protect its proprietary interests and reputation through the assertion of recognizable claims based on the actionable conduct of the anonymous, fictitiously-named defendants.

We hold that when such an application is made, the trial court should first require the plaintiff to undertake efforts to notify the anonymous posters that they are the subject of a subpoena or application for an order of disclosure, and withhold action to afford the fictitiously-named defendants a reasonable opportunity to file and serve opposition to the application. These notification efforts should include posting a message of notification of the identity discovery request to the anonymous user on the ISP's pertinent message board.

The court shall also require the plaintiff to identify and set forth the exact statements purportedly made by each anonymous poster that plaintiff alleges constitutes actionable speech.

The complaint and all information provided to the court should be carefully reviewed to determine whether plaintiff has set forth a prima facie cause of action against the fictitiously-named anonymous defendants. In addition to establishing that its action can withstand a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to R. 4:6-2(f), the plaintiff must produce sufficient evidence supporting each element of its cause of action, on a prima facie basis, prior to a court ordering the disclosure of the identity of the unnamed defendant.

Finally, assuming the court concludes that the plaintiff has presented a prima facie cause of action, the court must balance the defendant's First Amendment right of anonymous free speech against the strength of the prima facie case presented and the necessity for the disclosure of the anonymous defendant's identity to allow the plaintiff to properly proceed. The application of these procedures and standards must be undertaken and analyzed on a case-by-case basis. The guiding principle is a result based on a meaningful analysis and a proper balancing of the equities and rights at issue.

With these principles in mind, we now turn to an analysis of Dendrite's action against John Doe No. 3 and the trial court's decision.

Dendrite is a New Jersey corporation based in Morristown that provides "highly specialized integrated product and service offerings for the Pharmaceutical and Consumer Package Goods (CPG) industries." Dendrite is publicly traded and has offices located in 21 countries.

"The Internet is an international network of interconnected computers[,]" providing "a unique and wholly new medium of world- wide human communication." Reno v. American Civil Liberties Union, 521 U.S. 844, 849-50, 117 S. Ct. 2329, 2334, 138 L. Ed. 2d 874, 884 (1997). In further describing the Internet and the services available, the Supreme Court noted, in part:

Individuals can obtain access to the Internet from many different sources, generally hosts themselves or entities with a host affiliation. . . . Several major national "online services" . . . offer access to their own extensive proprietary networks as well as a link to the much larger resources of the Internet. . . .

Anyone with access to the Internet may take advantage of a wide variety of communication and information retrieval methods. . . .

The best known category of communication over the Internet is the World Wide Web, which allows users to search for and retrieve information stored in remote computers, as well as, in some cases, to communicate back to designated sites. In concrete terms, the Web consists of a vast number of documents stored in different computers all over the world. . . .

The Web is thus comparable, from the reader's viewpoint, to both a vast library including millions of readily available and indexed publications and a sprawling mall offering goods and services.

From the publishers' point of view, it constitutes a vast platform from which to address and hear from a worldwide audience of millions of readers, viewers, researchers, and buyers. Any person or organization with a computer connected to the Internet can "publish" information. Publishers include government agencies, educational institutions, commercial entities, advocacy groups, and individuals. Publishers may either make their material available to the entire pool of Internet users, or confine access to a selected group, such as those willing to pay for the privilege. "No single organization controls any membership in the Web, nor is there any single centralized point from which individual Web sites or services can be blocked from the Web." [Id. 521 U.S. at 850-53, 117 S. Ct. at 2334- 36, 138 L. Ed. 2d at 884-86. (citations and footnotes omitted).]

Yahoo! is an ISP that, among other things, provides a service where users may post comments on bulletin and message boards related to the financial matters of particular companies. Yahoo! maintains a message board for every publicly-traded company and permits anyone to post messages on it. As such, Yahoo! operates a bulletin board specifically devoted to Dendrite, hosting exchanges of messages and comments about issues related to the company's stock performance. Generally, users of the bulletin boards post messages anonymously under pseudonyms. Yahoo! requires, however, that users provide identifying information, including real names, mailing addresses, and e-mail addresses prior to using the service. Nonetheless, Yahoo! guarantees to a certain extent that information about the identity of their individual subscribers will be kept confidential. Yahoo!'s privacy policy states that:

As a general rule, Yahoo! will not disclose any of your personally identifiable information except when we have your permission or under special circumstances, such as when we believe in good faith that the law requires it or under the circumstances described below.

Yahoo! may also disclose account information in special cases when we have reason to believe that disclosing this information is necessary to identify, contact or bring legal action against someone who may be violating Yahoo!'s Terms of Service or may be causing injury to . . . anyone . . .that could be harmed by such activities.

The postings by John Doe No. 3 on the Yahoo! Dendrite message board must be viewed in the following context. Dendrite filed its Quarterly Report for the second quarter of 1999 with the Securities and Exchange Commission (SEC) in August of 1999. In this report, Dendrite stated:

Historically, we have generally recognized license fees as revenue using the percentage of completion method over a period of time that begins with execution of the license agreement and ends with the completion of initial customization and installation, if any. However, we believe that with some of our newer sales force software products, such as, ForcePharma and SalesPlus, our customers will not require customization and therefore we may be able to recognize license fees from these products upon delivery.

Following the release of this report, several stock analysts commented on the disclosures therein. The Center for Financial Research and Analysis, Inc. (CFRA) issued a report in September 1999 specifically addressing what it characterized as Dendrite's "Change in Revenue Recognition." The CFRA report concluded that due to the apparent change indicated in its Quarterly Report, Dendrite's revenue recognition would provide an earnings boost and was actually one of the reasons for Dendrite's then-improved financial condition. Further, the CFRA report opined that the associated earnings boost may have "masked weaknesses in the company's core segment."

An Internet website, "TheStreet.com," published a similar article concerning Dendrite in September 1999, also responding to Dendrite's Quarterly Report. There, TheStreet.com noted several "red flags" about Dendrite, including its "more aggressive recognition of revenue." The author of the article stated that this change in Dendrite's revenue recognition policy "could mean more revenue up front."

Thereafter, at least two users of the Yahoo! Dendrite bulletin board mentioned the CFRA report and the article from TheStreet.com in respective postings. On September 21, 1999 one poster, citing the CFRA report, commented on Dendrite's purported accounting and operational problems. On September 22, 1999 another poster, citing TheStreet.com article, noted changes in Dendrite's policy of recognizing revenue. Sometime after the CFRA report was released Dendrite responded, denying it changed its revenue recognition policy as asserted in the CFRA report.

During the period from March 14, 2000 through June 2, 2000 John Doe No. 3, posted nine comments on the Yahoo! Dendrite bulletin board under the pseudonym "xxplrr." Three of these comments related to purported changes in Dendrite's revenue recognition accounting. Specifically, these comments included the following:

John's [(Dendrite president John Bailye)] got his contracts salted away to buy another year of earnings - and note how they're changing revenue recognition accounting to help it.

Bailye has his established contracts structured to provide a nice escalation in revenue. And then he's been changing his revenue-recognition accounting to further ...


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