If a company is merely trying to muzzle protected speech, it is far better off to save on legal firepower and confront the criticism straight on.

By Craig A. Newman and Eric S. Rosen

When an anonymous critic attacks a company's reputation online, the initial reaction is often to launch an expensive legal offensive to quiet the damaging criticism. However, before jumping headfirst into a costly and potentially risky litigation strategy, companies should consider whether they are using the court system to vindicate their protected legal rights or whether they are turning to litigation in an attempt to stifle unfair, albeit protected, criticism.

A lesson can be learned from a recent case involving USA Technologies, a NASDAQ-listed company that supplies products for devices such as vending machines and photocopiers. The company is in a tough spot, with its stock price having plunged more than 99% during the past decade. Despite this poor performance, the board of directors has continued to compensate company management handsomely.

As a result, the blogosphere has not been kind to USAT. One commentator, writing under the pseudonym "Stokklerk" on the Yahoo! Finance message board, accused USAT's CEO of having a "worldview" where "humanity exist[ed] to be fleeced," and stated that USAT had committed "legalized highway robbery" and was operating its business as a "soft Ponzi" scheme. Stokklerk further posted that "two top people at USAT" had "skimmed over $30M" from USAT by promoting a "story to lure investors and then" have the management approve "massive pay packages" that bore no correlation to company performance.

USAT fought back. On August 27, 2009, USAT filed a "John Doe" lawsuit against Stokklerk in federal court, setting forth claims of securities fraud and defamation. USAT also asked the Court to issue a subpoena directing Yahoo! to produce Stokklerk's IP address so that USAT could determine Stokklerk's identity. More