What the Yahoo Ruling Means for Web-based Companies

[qi:105] A federal appeals court last week ruled against Yahoo (s yhoo) in a dispute over the level of protection Internet businesses have when dealing with offensive material on web sites they control. Yahoo said it has immunity from lawsuits over content posted by third-party users. The Ninth Circuit U.S. Court of Appeals, however, disagreed (PDF).

The ruling doesn’t mean Yahoo is going to lose its entire case. Nor does it mean there’s been a change to the Communications Decency Act, the law that’s meant to strike a balance between promoting the exchange of ideas and encouraging companies to watch out for offensive material on the web. But as the case develops, there could be major implications for Yahoo and other businesses that operate on the web, for the ruling suggests that courts can exercise more oversight than ever before in the way Internet businesses monitor their web sites for inappropriate content. You might think that would bring about more stringent regulations. Perversely, it could have the opposite effect.

The case started out in Oregon when a woman named Cecilia Barnes found out that her ex-boyfriend posted nude photos on a Yahoo profile, along with her phone number at work, her email address and her mailing address. The ex-boyfriend also posed as Barnes in Yahoo chat rooms and made it look like she was soliciting sex. Barnes followed Yahoo’s policy for getting content taken down from its site, and according to the court ruling, waited several months before finally filing a lawsuit against the company for failing to do so.

The court ruled against Barnes on a claim for negligence, but said Yahoo’s monitoring policy and a promise made to her by one of the company’s spokeswomen show its intention to be held to an agreement. By neglecting to take down the profiles created by Barnes’ ex-boyfriend, Yahoo might have violated that agreement.

Kim Rubey, a Yahoo spokeswoman, wouldn’t comment on the facts of the case, but said in a written statement: “We are pleased the United States Court of Appeals for the Ninth Circuit affirmed the district court’s dismissal of the negligent undertaking claim. We are evaluating the opinion on the remaining claim and look forward to swift resolution in the district court.”

The court’s ruling hints that there might be an easy way out of this mess. If a web-based company disclaims any intention to be bound by a monitoring policy and it never promises to take down offensive material from the web, then it can never be bound by such an agreement.

Jeffrey Neuburger, a lawyer at Proskauer Rose who blogs about new media law, said he had been advising clients to issue disclaimers about monitoring offensive material since before the Yahoo case came along. That’s a general rule that could help a lot of companies stay out of trouble in the first place. But for Yahoo, Neuburger said issuing a disclaimer now might not be enough to prove it didn’t mean to create a legal agreement with Cecilia Barnes. “A court is going to have to make that decision,” he said.