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The High Court has ruled that for the first time an internet service provider (ISP) is responsible for defamatory material posted on its sites.
The historic judgment seriously threatens the existing concept of freedom of information on which the internet is based.
It is thought to be the first definitive ruling by an English High Court judge on internet libel.
Demon Internet, the largest provider of internet services in the UK, is being sued by Dr Laurence Godfrey, a university lecturer in physics, mathematics and computer science.
The High Court heard that on 13 January 1997, an anonymous posting was made in the US on a newsgroup on the Demon network, which was "squalid, obscene and defamatory of the plaintiff".
Godfrey complained to Demon about the posting four days later. Demon ignored his request to have it wiped off its server.
Mr Justice Morland ruled at a pre-trial hearing in the High Court that Demon Internet is responsible for the defamatory material and therefore liable to damages should the case go to trial. Demon will appeal against the decision.
David Furniss, director of Scottish Telecom's Internet Services, which owns Demon, says: "The ruling suggests that ISPs should be held liable for the information that they transmit between one party and another.
"This potentially opens up the internet industry at large to millions of similar unjustified complaints."
Godfrey welcomes the decision. He says: "I am glad the judge recognised that the defence Demon put forward was unsustainable."
Nick Braithwaite, partner at Bindman & Partners, which represented Godfrey, says: "Internet service providers cannot put their heads in the sand and kid themselves they're not publishing libellous messages."