Gadget maker MagicJack recently lost a defamation lawsuit that it filed against Boing Boing. The judge dismissed its case and ordered it to pay us more than $50,000 in legal costs.
The Florida-based VOIP company promotes a USB dongle that allows subscribers to make free or inexpensive phone calls over the internet. I posted in April 2008 about its terms of service—which include the right to analyze customers' calls—and various iffy characteristics of its website.
We had no idea that it would file a baseless lawsuit to try and shut me up, that CEO Dan Borislow would offer to buy our silence after disparaging his own lawyers, or that MagicJack would ultimately face legal consequences for trying to intimidate critics.
At several points in the process, we could have taken a check and walked away: as it is, the award doesn't quite cover our costs. But we don't like being bullied, and we wanted the chance to tell anyone else threatened by this company what to expect.
The post was titled "MagicJack's EULA says it will spy on you and force you into arbitration." This EULA, or End-User Licensing Agreement, concerns what subscribers must agree to in order to use the service. I wrote that MagicJack's allows it to target ads at users based on their calls, was not linked to from its homepage or at sign-up, and has its users waive the right to sue in court. I also wrote that that MagicJack's website contained a visitor counter that incremented automatically; and that the website claimed to be able to detect MagicJacks, reporting that "Your MagicJack is functioning properly" even when none are present.
In the lawsuit, filed March 2009 in Marin, Ca., MagicJack alleged that these statements were false, misleading, and had irreparably harmed MagicJack's reputation by exposing it to "hate, ridicule and obloquy." The lawsuit demanded removal of our post and unspecified damages. It also alleged that I am a professional blogger.
Published in the gadgets section of our site, the post didn't criticize the service or the gadget itself, which works very well. Though just 200 words long, it soon came up among search results for the company's name. It was also reposted on Boing Boing's homepage by Cory Doctorow, under the title "MagicJack net-phone: swollen pustule of crappy terms of service and spyware."
Boing Boing has a long history of covering EULAs and related issues; we're also no stranger to legal intimidation. Believing that the suit sought to exploit the trivial matter of the website counter to silence our discussion of the more important issues, we fought back. Our lawyers, Rob Rader, Marc Mayer and Jill Rubin of MS&K, determined that it was a SLAPP lawsuit: a strategic lawsuit against public participation. In such a lawsuit, winning is not the main objective. Instead, it is crafted to harry critics, not least with the high cost of fighting a lawsuit, into abandoning their criticism. New York Supreme Court Judge J. Nicholas Colabella wrote that "short of a gun to the head, a greater threat to First Amendment expression can scarcely be imagined."
California led the way in fighting such lawsuits, passing an anti-SLAPP statute in 1992. This allows defendants to file a special motion to strike complaints leveled against constutitionally protected speech--and to recover costs. Accordingly, our lawyers filed such a motion, which forced MagicJack to show it would have a 'reasonable probability' of prevailing if it went to trial.
After it failed to do so, a California judge dismissed MagicJack's suit late last year. She noted that in its complaint, MagicJack essentially admitted the very act it claims to be defamed by.
"Plaintiff's own evidence shows that the counter is not counting visitors to the website as a visitor visits the site," wrote Judge Verna A. Adams. "Instead, the visitor is seeing an estimate. ... As to the statements based on the EULA, such statements, read in context, do not imply that the plaintiff is eavesdropping on its customers calls. Instead, the statements clearly constitute the opinion of the author that analyzing phone numbers for purposes of targeted advertising amounts to "spy[ing]," "snoop[ing]," and "systematic privacy invasion."
After the dismissal of the lawsuit, MagicJack CEO Dan Borislow apologized and told us that his lawyers, Arnold & Porter, did not fully disclose to him the weaknesses in his case or properly analyze California law. During negotiations, we were surprised when MagicJack agreed to a settlement of our legal costs, then backed out.
We would not agree to keep the actual legal dispute confidential under any circumstances. However, we offered not to publish details of our legal costs or their settlement if Borislow would donate $25,000 to charity. MagicJack, however, offered to pay our legal bill only if we'd agree to keep the whole dispute confidential; when we refused, Borislow wrote that he would 'see us in court.' Nonetheless, we're happy with the outcome. The irony for MagicJack is that the proceedings are public record, so the silence it sought was effectively worthless.
MagicJack's relentless television infomercials are a staple of cable television. The gadget itself, no larger than a 3G modem, earned praise from gadget reviewers and opprobrium from Florida's attorney general.
According to Wikipedia, the Better Business Bureau of Southeast Florida has received hundreds of customer service complaints, primarily related to difficulty returning the product under the 30-day guarantee and the longtime lack of an uninstaller. In 2008, its grade with the Better Business Bureau was reported to be "F." According to the bureau, this rating is assigned to companies under the following circumstances: "We strongly question the company's reliability for reasons such as that they have failed to respond to complaints, their advertising is grossly misleading, they are not in compliance with the law's licensing or registration requirements, their complaints contain especially serious allegations, or the company's industry is known for its fraudulent business practices."
MagicJack currently has an A- rating after becoming an 'Accredited' BBB partner in 2009. At the time of its failing grade, however, Borislow dismissed the Better Business Bureau's system as meaningless: "I have Comcast cable in my house; they are rated an F. I use Sprint on some of our phones; they are rated an F. My bank, who I have been with forever, Colonial Bancorp, is rated an F. The list is endless." The BBB's 'TrustLink rating' gives it only two stars out of five.
In December 2008, MagicJack filed a $1,000,000 lawsuit (docket) against competitiors Joiphone and PhonePower, who linked to a blog post by a Singapore-based blogger whose own discussion of the product echoed ours: "Magic Jack (sic) will spy on you and force you into arbitration," Vinay Rasam headlined a post at now-vanished site voipphoneservices.org. In that case, MagicJack's legal rationale was trademark infringement, false advertising and violation of the unfair trade practices act.
In April 2009, MagicJack reached a settlement with Florida's Attorney General after claims it charged customers for services during the 'free' trial period. The company paid the state's costs and made no admission that it broke the law. Investigators in the case found that MagicJack's product had limitations that were not properly disclosed, and that the company did not respond adequately to customer complaints.
Read other interesting legal documents related to the case (including a motion in which MagicJack claims to be 'not in the public eye') at our MagicJack legal documents post.
Photo: The gavel photograph is from bloomsberries' photostream.