COLUMN ONE : New Legal Frontier: Cyberspace : Millions of Americans swap information--and barbs--on computer bulletin boards. But the laws governing free speech are making an abrupt entry into this spaceless, timeless world.

The trouble all started last summer, when Peter DeNigris bought his first computer.

For years, the 41-year-old Long Island, N.Y., elections forms processor had invested small sums in small companies. Like many amateur investors, he had lots of opinions about his stocks, but few people who cared to hear them. Then, while he was computer-shopping, DeNigris discovered Prodigy, an electronic information service that operates a bulletin board system with hundreds of discussion topics, including one called Money Talk.

With a computer, communications modem and Prodigy, DeNigris now could speak his mind to a potential audience of more than 2 million Prodigy subscribers, including many who shared his keen interest in low-priced stocks. “I never saw anything like it before,” says DeNigris. “You know, it was fun.”

But now, in a case that may test the boundaries of free speech in the emerging computer age, a small New Jersey company called Medphone Corp. is suing DeNigris in federal court in New Jersey. Medphone alleges that DeNigris’ comments on the Money Talk board helped cause an almost 50% decline in the company’s stock last summer. The suit also charges him with libel and securities fraud.

In an era when freedom of the press no longer belongs only to those who own one (the $14.95 monthly Prodigy fee will suffice), the case raises questions about responsibility and liability on what has been called the Electronic Frontier. And they are questions that are likely to be posed with greater urgency as the land of high technology grows increasingly populated.

Indeed, just as the sheriff lagged behind the cowboys and criminals who settled the American West, modern law has failed to keep up with the rapid spread of communications technology. As a result, the high-tech community has been left to wrangle over which conventional mode of communication most closely resembles the new ones.

Electronic bulletin boards have been compared to town criers, bookstores, newspapers, billboards and radio talk shows. But some bulletin board advocates say the social and legal standards that regulate more traditional means of expression don’t apply to the spaceless, timeless world known as “cyberspace,” where communication is cheap, instant and almost always unedited.

“Up to this point we’ve had two communication modes,” says Jack Rickard, editor of Boardwatch magazine. “One-to-one: you could call someone on the phone, and one-to-many: you could publish something in the L.A. Times. This is many-to-many. We’ve never had anything like it before.”

More than 12 million Americans regularly log on to one of the nation’s 60,000 bulletin boards, which have doubled in number in the last 18 months alone. With a few punches on a computer keyboard, bulletin board users can get baseball scores, stock market reports or the latest version of Duke Nukem. They can swap car repair tips or chat about the latest episode of “The Simpsons.”

Hundreds of boards contain information or discussion areas aimed specifically at investors. And yet, what can and can’t legally be said on them, and who is ultimately responsible, is far from clear. Part of the problem is that people tend to say things electronically that they wouldn’t dare say otherwise. Sudden confessions of affection usually are confined to the less-public forum of electronic mail, but bulletin boards are not infrequently the sites of “flaming,” the term used to describe an exceptionally argumentative attack posted on a board.

Among the more inflammatory of DeNigris’ postings, according to Medphone’s lawsuit, was the message he sent on the morning of Sept. 7:

“Is the end near for Medphone????????? Stock is quoted 25 cents to 38 cents. Closed at a new low Friday, at (38 cents). My research indicated company is really having a difficult time. No cash, no sales, no profits, and terrible management. This company appears to be a fraud. Probably will cease operations soon!”

DeNigris says his comments about Medphone were prompted by a debate already taking place on Money Talk the first time he logged on last July. Since he had lost about $9,000 when he sold his Medphone stock in November, he said, he was anxious to contribute to the discussion. “I saw all this being posted about Medphone,” he insists. “All I did was get in and post my opinion.”

But Medphone Chairman S. Eric Wachtel says DeNigris’ remarks were out of line. “This guy was logging on three, four times a day to say these things. Why would someone do that?” Wachtel demands. “The things he has done have been very damaging to this company.”

The Medphone lawsuit has sparked a storm of controversy among Prodigy subscribers, especially after word got out that the White Plains, N.Y.-based on-line service in January released records of subscriber messages subpoenaed by lawyers for both parties. Some subscribers who were critical of Medphone worry that they could be dragged into the suit. Others contend that Prodigy, not individual users, should be held responsible for whatever gets “published” on its boards.

“Prodigy created this system, sets the rules and censors some notes. It’s unfair to expect us to be liable,” says William Hirsch, a Prodigy subscriber in Brooklyn, N.Y., who broached the matter on Money Talk several weeks ago.

Nor is free speech the only issue. Some Prodigy users say a fledgling form of shareholder empowerment is at stake here. Others are alarmed at the thought that the bulletin boards could spawn a new type of securities fraud.

“Never before in the security industry history has the small investor been able to communicate with so many others about the companies they invest in,” one Money Talk veteran wrote. Responded another: “What is alarming to me is that not only can stockholders communicate with one another electronically on Prodigy--they communicate MISinformation.”

More than 1,000 messages regarding the case clogged the service’s bulletin boards last month as Money Talk regulars and denizens of other boards hashed over its ramifications. Some users have taken to signing their electronic notes with the acronym IMHO, computer shorthand for “in my humble opinion.”

The problem is, there’s virtually no legal precedent governing the operation of electronic bulletin boards, says Shari Steele, an attorney for the Electronic Frontier Foundation, a Washington, D.C.-based civil liberties group formed in 1990 to defend the constitutional rights of computer hackers.

“Fortunately, or unfortunately, there’s very little case law that even mentions bulletin boards,” Steele says. “This whole area is so murky, it’s sort of scary for people who are trying to work with it, because they don’t know what to expect from the law.”

While the Medphone case is not the first to raise the issue of bulletin board libel, only one such case has ever gone to court, Steele said. In 1991, the publisher of an on-line newsletter sued the CompuServe Information Service, alleging that he had lost customers as a result of defamation by another newsletter distributed on the service. In ruling for CompuServe, a New York district judge compared the service to a bookseller, who courts have ruled cannot be held responsible for the content of each book they sell.

Among computer civil libertarians, the CompuServe case is seen as a victory--if only a temporary one. Proponents of bulletin board free speech worry that a similar case is likely to come before a higher court in the future. Any legal decision that held bulletin board operators responsible for all messages passing through their systems could send a shock wave through the business, possibly leading to the shutdown of thousands of boards.

Prodigy--a joint venture of International Business Machines Corp. and Sears, Roebuck & Co.--is not named as a defendant in the Medphone case. At Medphone’s request last month, however, U.S. Magistrate John Pisano gave the company until May 24 to bring in other parties.

Prodigy, which bills itself as a family oriented service, is one of the few bulletin boards in the country to screen all electronic messages for potential improprieties. Some observers liken Prodigy to a newspaper publisher, which is ultimately responsible for what appears in print.

Indeed, some Prodigy subscribers say the company’s policy of deleting and returning messages that violate guidelines laid out in a five-page policy statement--including those deemed “defamatory”--is an infringement of free speech. (Devotees of one Prodigy board dealing with racy radio disc jockey Howard Stern are particularly vocal on this point.)

But with 175,000 notes posted on its boards each day, the company says it now does most of its screening with an electronic scanner, a device which can be programmed to catch obscenities, but not the finer points of securities law.

Prodigy lawyer William Schneck, who has responded directly on Money Talk to user complaints, concedes that he is frustrated with the law’s lack of clarity regarding electronic communication. “How can Prodigy deny responsibility for posts appearing on its boards? Because it hasn’t been legally established that we *are* responsible for notes,” he wrote in response to a raft of questions from subscribers. (Asterisks are bulletin-board shorthand to add emphasis to a word or phrase.)

As the use of bulletin boards grows, such confusion will become increasingly dangerous--both for the fledgling mode of communication and the individuals who use it, says attorney Robert Charles, of Weil, Gotshal & Manges in New York, who has written about libel law and bulletin boards. But developing a legal standard for this electronic medium is no easy task.

Comparing computer bulletin boards to their cork-and-stickpin namesakes, for example, just doesn’t work. For instance, the owner of a supermarket that displays a public bulletin board can be held legally responsible if he allows a defamatory message to remain posted on the board for what the court considers an unreasonable amount of time. But the daily volume of traffic on many computer bulletin boards is so huge that it would be almost impossible for the operator to monitor.

Comparing an electronic board to a telephone or telegraph may be equally futile: While the courts have agreed that telecommunications companies should not be held liable for information transmitted via their lines, they must also allow access to anybody who can afford it. Such a rule could pose significant problems for the thousands of small bulletin board operators who use only their personal computers and a few phone lines. Without the ability to regulate use, a board intended for bird watchers could be overrun by Star Trek fans in no time.

Even the bookseller analogy may be an ill fit. It raises the question of whether a bulletin board system operator--also known as a sysop--must consciously ignore the contents of a board to escape liability.

If a legal standard is not established soon, civil libertarians fear that judges and juries unfamiliar with the new technology may create ad hoc standards that could stunt the growth of bulletin-board communication.

“The reputations of individuals and of companies are affected in a way they never have been before, and their rights need to be protected,” Charles said. “But what you don’t want on this new medium is to see speech chilled. If the industry does not find a way to embrace wide First Amendment protections, it’s going to be less attractive to future users . . . . “

Bulletin boards are quietly revolutionizing the way people communicate. And while the things they are used for are pretty ordinary--falling in love, meeting friends, getting jobs, exchanging ideas, selling stuff--the medium has the potential to reshape meanings and expand the dimensions of relationships long taken for granted.

For small investors, like those who use Prodigy’s Money Talk, electronic communications has opened a fertile new source of information. Stock market players unable to afford hefty brokers’ fees or subscriptions to pricey investment newsletters can use bulletin boards to pool information--much as a large stock brokerage pools research for its clients.

To be sure, not all of the investment information on bulletin boards is reliable. For example, it is easy for an individual to get several bulletin board accounts under different names to tout or denigrate a certain stock. Recognizing the potential for damage, some companies have begun regularly monitoring the boards to see what people are writing about them.

“Anytime you provide information, it’s risky,” said Frederick Shipley, professor of finance at DePaul University and former editor of Computerized Investing. “There’s always the potential for libel. But anything that increases the flow of information to investors is good for the financial community. It would be a real blow if (bulletin board communication) was limited.”

Medphone, whose stock closed Thursday at 62.5 cents on the American Stock Exchange’s Emerging Companies market, has only about 500 registered shareholders. Typically, stocks of companies with few shareholders and light trading activity are more vulnerable to market rumors, which can result in wild price swings.

Medphone Chairman Wachtel says he doesn’t want to crush the growth of investor bulletin boards. What he wants is to regain the investor confidence his company lost when its stock slid from $1.44 a share to 36 cents between April and September last year.

“We’re not interested in setting some precedent on this thing,” Wachtel said. “The point is that he (DeNigris) libeled us, not that he did it on Prodigy.”

Even if Medphone’s lawyers can convince the court that DeNigris’ comments on Prodigy were libelous, it may be harder to prove that his remarks caused the decline in Medphone’s stock. Medphone’s sales had slid to $103,000 in 1992, from $318,000 in 1990. The company lost $2.3 million last year, and its stock price had begun to slide in April, nearly three months before DeNigris first logged onto Money Talk.

Says Gary Davis, an analyst with Vantage Securities in New York: “The reason the stock is down relates to the company’s performance as a business. I’m sure (DeNigris’) comment hurt the stock, but my attitude is this is a diversion--the company’s low on cash as it is, and now it’s going to spend it on litigation.”

As an ever-growing number of Americans log onto bulletin boards as part of their daily lives, the courts may get increasingly crowded with lawsuits like Medphone’s. Many businesses in the computer industry ask employees to “lurk” on boards that are likely to attract prospective customers (Hard Drive Cafe on Prodigy is one), just to keep tabs on what’s being said about them.

Microsoft Corp.’s product managers, for example, scan several boards daily. They use what they find there to help shape product decisions, and sometimes even venture out of lurk-mode to defend their software against criticism.

Indeed, Michael Godwin, counsel for the Electronic Frontier Foundation, says the ultimate solution to the problems of libel on bulletin boards may lie in their ability to offer a quick, direct and public response to anyone who feels they were wronged.

“In bulletin board land, everyone has media access, so people can answer the defamation directly,” Godwin says. “It’s a mass medium in everyone’s hand. And it only costs a few cents to log on to correct the record.”

A Guide to the Electronic Frontier

The expanding world of bulletin boards has spawned its own language. Here are some terms: * Cyberspace: A term coined by William Gibson in his fantasy novel “Neuromancer” to describe the world of computers and the society that gathers around them. * E-mail: Electronic mail automatically passed through computer networks or via modems over common-carrier lines. Sometimes compared to “snail mail,” i.e., any missive carried by the U.S. Postal Service. Differs from a bulletin board post in that it is private, usually exchanged between two individuals or a small group. * Bulletin Board System: A message database (also known as BBS) where people can log in and leave broadcast messages for others usually arranged into topic groups. Thousands of local bulletin board systems are in operation throughout the United States. * Posting: An electronic message distinguished from a “letter” or an ordinary E-mail message by the fact that it is broadcast to a group rather than point to point. * IMHO: Acronym for “in my humble opinion.” Also seen in variant forms, such as IMNSHO (in my not-so-humble opinion) and IMAO (in my arrogant opinion). Lurk: To log onto a bulletin board and read the discussion without participating or making your presence known. * Flame: To post an E-mail or bulletin board message that is especially insulting or provocative.

Sources: “The Hacker’s Dictionary,” Eric S. Raymond; “Zen and the Art of Internet,” Brendan P. Kehoe