EBay's Decision to Take Away Sellers' Ability to Rate Buyers: With Libel Law Often Unenforceable Online, What Rules Can Be Used to Protect Reputation?
Part One In a Two-Part Series of Columns

Recently, as Wired reported, the online auction site eBay has decided to remove sellers' ability to give buyers a negative or neutral rating, while leaving intact buyers' ability to give sellers neutral or negative ratings. Sellers, in contrast, can now give positive feedback or none at all. (In the past, after a buyer won an auction, the buyer could leave feedback on the website -- in the form of positive, negative, or neutral ratings and a brief statement about the seller regarding speed of delivery, quality and authenticity of product, and whether the item actually arrived. The seller, in turn, could leave similar feedback and ratings about the buyer, in terms of promptness of payment, funds actually being transferred, reasonableness of the buyer's requests for refunds, and other criteria).

EBay justifies this new, asymmetric rule on the ground that under its prior system, a seller would often give negative feedback to the buyer simply in retaliation -- that is, simply because the buyer first gave negative feedback to the seller. In turn, this inhibited buyers from ever giving negative feedback to sellers - for fear of suffering just such retaliation. The overall result was to impoverish the eBay community's collective ability to assess the quality of a particular seller, and thus potentially to let bad sellers -- such as those who parlayed knockoff goods as genuine -- unfairly thrive.

This definitely isn't the first pro-buyer rule in the sales context. (Consider "The customer is always right.") But it's still notable, because it's an example of an online rule instituted by a private company for policing reputation -- which is a function served.in the real world by libel law. Moreover, while eBay's reputational rating system is unusually formal, numerous sites allow comments to be made that could theoretically damage reputation - and institute various systems for addressing them if they are challenged as inaccurate. Might some of these systems - or those they evolve into in the future -- be superior to libel law?

In this first column of a two-part series, I'll consider the difference between the protection of reputation in real-life and online contexts. In addition, I'll argue that because of some serious problems with "real world" libel law, devising new online reputation-protection systems - systems that can be tweaked over time to make them fairer -- may prove over the long term to be a superior approach

The Protection of Reputation in the Real World: Advantage, Plaintiffs

Most of the libel cases that make headlines and draw attention are brought by well-known individuals. Typically, a celebrity sues a deep-pocketed institution, such as a media corporation, claiming that a statement in, say, a newspaper owned by the media corporation, about her is false and damaging. Some of these suits have merit, but others are brought for reasons that are completely unconnected to the merits of the suit - and for reasons that might, like the feedback that drove eBay to take action, be simply retaliatory.

There is a myriad of reasons why meritless suits may be brought.

First, the plaintiff may be trying to figure out who a reporter's confidential sources are, in order to punish or sue these less deep-pocketed individuals. This strategy is rarely successful in ferreting out the sources ' identities, but it may well lead the corporation to settle the case for a substantial amount, rather than give up its confidential sources.

Second, the plaintiff may simply want to make money - in an extortion-like strategy. Corporations know that attorneys' fees incurred in defending a libel suit will rapidly dwarf a small, early settlement, so they may simply pay low settlements in order to improve their bottom line.

Third, filing a case may essentially be a publicity stunt, intended to muddy the waters, even though the statement made about the person was true or, at least, well-justified. When readers read a bombshell statement about a public figure, and then read that the target of the statement is suing for libel, they may simply tune out and reserve judgment on the matter until they hear more. And since settlement terms are almost always confidential, all they may ever hear is that the case settled, which leads them to continue to reserve judgment -- forever. From the plaintiff's view, that's a better outcome than just having the negative statement out there.

The Difficulty of Combating Meritless Libel Suits

If so many of these suits lack merit, the reader may ask, why can't courts just dismiss them early on? The problem is that the really quick and relatively cheap mechanism for defeating a meritless suit, a motion to dismiss, rarely works in a libel case.

Here's why: Libel is defined as the publication of a false statement of fact that causes damage to reputation. To win on a motion to dismiss, the defendant could, in theory, argue that the statement isn't inherently damaging. However, plaintiffs typically don't bother to sue on non-damaging statements; if they aren't hurt, they don't usually care.

Alternatively, the defendant could argue that the statement is not factual, but a matter of opinion. Yet plaintiffs don't tend to sue on opinions that plainly are not factual, and when a statement occupies the netherworld between fact and opinion, the court may well let the case go forward to discovery to see if the plaintiff can gather facts that show it is false.

For all these reasons, it is often difficult to avoid costly fact discovery in the context of a defamation suit.

The Difficulty of Winning Libel Suits for Public Figures and Officials

Fortunately, thanks to the Supreme Court's landmark decision in New York Times Co. v. Sullivan, even if it is easy for a plaintiff to bring a libel suit, it is hard for a public-figure plaintiff to prevail. That is because of the famous "actual malice" standard, which requires actual knowledge or reckless disregard of the probable falsity of the statement at issue.

After New York Times Co., in the less famous but also deeply important decision in St. Amant v. Thompson, the Supreme Court made clear that the defendant's state of mind (that is, its reckless disregard, actual knowledge, or lack thereof) must be judged from a subjective, not an objective standpoint. In other words, it must be judged based on what the defendant actually knew and thought, not based on what a hypothetical reasonable person in the defendant's position might have known or thought.

Yet New York Times Co. and St. Amant don't deter as many libel suits as one might think. Granted, settlement negotiations occur in the shadow of those decisions, but defendants have strong financial incentives to settle at a low figure before, or shortly after, a case is filed -- before the motion to dismiss is briefed, before discovery begins, and before a very costly, fact-intensive motion for summary judgment is briefed. Plaintiffs' attorneys may use these pressure points as leverage to open or re-open settlement negotiations. Moreover, savvy plaintiffs' attorneys have an incentive to settle early too, for two reasons: First, they know that appellate courts may well reduce large libel judgments to more reasonable ones, with First Amendment concerns in mind. Second, if they are operating on a contingency-fee basis, they may prefer to avoid the massive, risky outlay of funds involved in actually trying the case in favor of settling.

In sum, serious problems plague the libel regime that applies if the plaintiff is a public figure, even despite the Supreme Court's pro-First-Amendment decisions in this area. Moreover, the libel regime for private-figure defendants is far worse: "Actual malice" is not the standard; instead, simple negligence on the part of the person who published the statement at issue is typically sufficient. With shallower-pocketed defendants who can be wiped out financially by a single verdict, and a negligence standard under which the plaintiff can always argue that more checking should ideally have been done before the statement was made, the extortion potential in private-figure libel litigation is massive.

Justice for Those Plaintiffs Who Truly Have Been Defamed

The one small beacon of light in this fairly dire situation, however, is that someone who truly has been defamed - at least, defamed by a U.S. resident - typically can get justice. To begin, it is not very difficult even to file a pro se libel complaint. While the defenses can be complex, the elements of the tort of libel are relatively simple. Thus, a complaint that will survive a motion to dismiss is quite easy to write in most cases of a straight-out factually false allegation.

In terms of pre-trial litigation, most individual plaintiffs, in most cases, will possess only a very limited number of documents responsive to the defendant's discovery requests, so production of documents is unlikely to be very burdensome for the plaintiff. Also, unless the state in question has a specific statute, as California does, that allows sanctions against frivolous suits and is broad enough to encompass defamation suits, the plaintiff has nothing to lose but his or her time and effort.

Finally, getting jurisdiction over the defendant, if he or she is a U.S. resident, should be fairly straightforward. (Speakers who reside outside the U.S. may not fall within the jurisdiction of U.S. courts. Even if they do, and a judgment is issued in their absence, and it can be enforced abroad, collection from a shallow-pocketed private individual may prove more costly than the amount that can be recovered.)

The Protection of Reputation in the Online World: Advantage, Defendants

The online world's protection of reputation almost perfectly reverses the real-world situation: Defendants are advantaged, but the genuine victim of libel may have a much worse time getting justice through the courts.

Online, with speakers anonymous and potentially untraceable, any would-be defendant who knows that he or she is making a bombshell and highly questionable statement can make efforts to hide his or her identity. Moreover, if a damaging statement comes virtually simultaneously from a number of identifiable sources, it may be difficult and cumbersome to figure out, in the course of litigation, how much a particular source hurt the plaintiff and thus apportion damages.

Yet the news for the targets of online attacks on reputation isn't all bad. Importantly, the online world is more democratic than the real world in many ways - and one such way is that ordinary people may increasingly find a receptive audience when they tell the world that what has been said about them is false. Their case is even stronger when they can muster strong arguments and/or proof in their favor.

As the hierarchy of traditional journalism is increasingly subject to inroads from bloggers and others, it is no longer the case that if the New York Times or another major traditional media entity says something damaging about you, then the only real way to combat it is to sue and get a retraction. One can also appeal to the blogosphere for support, and potentially get it.

In the Dan Rather/bloggers debacle, for instance, President Bush did not have to sue. Instead, bloggers scrupulously and effectively challenged the documents that CBS had claimed made Bush a liar as to his National Guard service.

In the second of this series of columns, I will discuss possible reasons that online solutions could be superior to real-world libel rules. Moreover, I will also draw upon a recent case to explain the wrench that the online protection of anonymity throws into the matter.