Brokerage Drops $200-Million Libel Lawsuit Against Prodigy

Ending a closely watched legal battle over the slippery issue of whether on-line information services are responsible for comments posted by subscribers, Stratton Oakmont Inc. said Tuesday that it was dropping its $200-million libel suit against Prodigy Services Co.

In return, Prodigy said it was sorry if offensive on-line remarks about Stratton Oakmont from a Prodigy subscriber injured the Long Island brokerage’s reputation in the securities business. Attorneys representing Prodigy will also drop their probe of Stratton Oakmont’s business practices, which was aimed at proving that the statements in question were true and thus not libelous.

At issue in the case was whether the Prodigy network is responsible for the content of the messages posted on its public forums--as a book publisher would be--or whether it is a passive carrier of information--like a bookstore or a telephone company.

In May, a New York judge refused Prodigy’s request to dismiss the case, ruling that the on-line service, which has an estimated 2 million subscribers, is indeed a publisher. Together with several of its major competitors, including America Online and CompuServe, Prodigy vowed to fight the matter as far as the U.S. Supreme Court.

The on-line networks argue that defining them as publishers would force them to choose between opening themselves to libel suits when they monitored their systems for indecent or offensive messages, or stop monitoring them entirely.

Jacob Zamansky, Stratton’s lawyer, said Tuesday that his client decided it “didn’t want to spend the rest of its life fighting the on-line industry. . . . I have achieved my goal of making on-line companies more aware of risks.”

Industry observers said the brokerage, which has had legal problems of its own, may also have been put off by Prodigy’s newly aggressive stance in the case.

A Prodigy spokesman said the firm didn’t pay Stratton Oakmont a settlement.

With the resolution of the Prodigy case, civil libertarians and cyberspace watchers said the next attempt to define libel and defamation in the electronic arena will probably come from Congress.

A bill sponsored by Rep. Christopher Cox (R-Newport Beach) would encourage on-line services to monitor networks for pornography, but would absolve them of responsibility. The legislation is currently in committee.

“There’s no perfect model out there,” said David Banisar of the Electronic Privacy Information Center in Washington. “There’s still no good precedent.”