This is an excellent piece of legal analysis by Kurt Opsahl of the EFF.
My book review of How to Become the World's No. 1 Hacker is referenced in the analysis below
LIGATT Security Tries to Silence its Online Critics With an Unsubstantiated Lawsuit
LIGATT Security, a controversial Georgia-based computer security firm, is embroiled in an ongoing flame war with its online detractors, who question the firm's legitimacy and stock prospects. Earlier this month, LIGATT upped the ante by filing suit in a Georgia court, threatening about 25 anonymous commenters on Yahoo! Message Boards and demanding a $5 million judgment and a court order prohibiting criticism. LIGATT CEO warned that he hoped the lawsuit would "set a trend" for other OTC companies facing online critics.
We hope not. EFF is frequently called upon to help protect the rights of anonymous speakers in similar suits, and the world does not need more facially deficient lawsuits targeting online critics. As we explain below, this complaint is a prime example of a case that should be dismissed. And, if LIGATT attempts to use this complaint to subpoena Yahoo! for the identities of its critics, the subpoenas might not only fail, but LIGATT may be forced to pay its critics' attorneys' fees.
It is not surprising that LIGATT has attracted controversy and commentary. The publicly traded company is headed by Gregory Evans, a self-described "media personality" who calls himself the "World's #1 Hacker." Evans' books include "Memoirs of a Hi-Tech Hustler," an account of the exploits that landed him in federal prison, and "How to Become the World's No. 1 Hacker," an allegedly plagiarized introduction to computer security. LIGATT has published provocativeonline videos advertising its services. And this is not the first time LIGATT has been criticized over its litigation.
The important legal question at this point, however, is not whether LIGATT's critics are right or wrong, but whether the complaint sets forth a valid claim. It does not. LIGATT and Evans' complaint asserts three primary claims: defamation, commercial disparagement, and "tortuous interference with contractual relations," which is a way of accusing the defendants of hurting its business relationships. The company also seeks an injunction against the defendants from posting any further defamatory comments against LIGATT Security, its subsidiary SPOOFEM.COM, or its CEO Evans, and demands $5 million dollars in damages. The alleged damages are double the most recent "Estimated Market Cap" for the whole company listed on its investor relations page.
Curiously, while LIGATT's press release announcing the lawsuit and the accompanying video claim the suit was filed against "stock bashers," the complaint never once references the company's stock or alleges stock manipulation. While federal and state law prohibit certain forms of stock manipulation, criticizing a publicly traded company and its CEO is not a valid legal cause of action in and of itself.
In its complaint, LIGATT claims the defendants posted "false and defamatory statements" on the Yahoo Technology message board and a few other websites. But the purported defamatory statements are never identified in the complaint, much less set forth. There is no attempt to tie each of the defendants to particular statements. Under long-standing Georgia law, failure to clearly identify defamatory statements in a complaint is grounds for dismissing a defamation claim (with leave to amend). The allegation in this complaint is insufficient because it is just a bald conclusion that the unidentified statements are "false and untrue and defamed Plaintiffs." Under Georgia law, libel complaints are subject to a strict standard, and "allegations ... characterizing the publication as libelous and libelous per se are mere conclusions not supported by the pleaded facts" that must be dismissed.
Similarly, if the defendants were to move this case to a federal court (which may be possible if the defendants are not from Georgia), allegations of specific statements would be required and the complaint would be dismissed under the federal pleading standard that requires more than "conclusory allegations" and "legal conclusions masquerading as facts" (recently explained in two Supreme Court decisions, commonly known as Iqbal and Twombly).
LIGATT's "commercial disparagement" claim is simply a variation of the original defamation claim, and hangs on the same unidentified "false and defamatory statements" thread. The court should dismiss the claim for the same reasons. Moreover, even if the actual statements were pled, a federal court in Georgia recently noted that Georgia law does not support this type of claim, and a Georgia Supreme Court opinion both refused to recognize the similar tort of injurious falsehood and held that plaintiffs could not recover twice under two theories.
The complaint’s final substantive claim, accusing the defendants of interfering with LIGATT's business contracts, would also fail because LIGATT must identify wrongful conduct and provide facts, not legal conclusions, to support the cause of action. The complaint, however, does not identify any wrongful conduct on the part of the defendants beyond the deficient defamation claim. This claim should fall with the rest of the house of cards.
California’s anti-SLAPP law is another hurdle for LIGATT. Most of the defendants are anonymous Does, who have exercised their constitutional right to speak pseudonymously online. To the extent that LIGATT wants to issue subpoenas to Yahoo!, located in California, to uncover the identities of the posters on the message board, LIGATT would be wise to realize that California law mandates attorneys' fees for anyone who prevails in quashing or modifying such a subpoena, if the underlying action involves the person's online free speech rights and the plaintiff does not make a prima facie showing of the cause of action.
When courts, both in California and throughout the country, consider whether to allow a subpoena to unmask an anonymous speaker, they use a First Amendment test that requires the plaintiffs to show they have a real case. As explained above, the complaint fails to allege sufficient facts to do so. Moreover, since the plaintiffs would likely be considered public figures for purposes of this lawsuit, LIGATT would have to show a prima facie case for actual malice--a significant and difficult hurdle to overcome.
Through this lawsuit and its press release, LIGATT is affirmatively seeking to encourage and extend a disturbing trend of using the legal system as a weapon to intimidate online critics. Often, these deficient lawsuits are used to unmask online critics, even when those critics are engaged in constitutionally protected speech. LIGATT's complaint is rife with conclusory allegations and exemplifies the deficiencies with most of these lawsuits. LIGATT should voluntarily dismiss this lawsuit, and not refile unless and until it can state a valid claim that a critic has actually violated the law, quoting specifically the allegedly defamatory speech and alleging facts that show how the quoted speech is false, defamatory and was made with actual malice.