Advocates for free speech backed the US ruling, which puts internet service providers (ISPs) on the same footing as telephone companies as message carriers.
Stewart Baker, a partner at Steptoe & Johnson, a Washington law firm, said US companies that operate in Britain, such as America Online, could now apply to domestic courts if they were held liable under British laws. "This is not going to disappear as a legal issue," he said.
Although an out-of-court settlement, the Demon case was widely interpreted as a warning to British ISPs and web publishers. Within days of the settlement, British ISPs closed two websites - a gay site called Outcast and an anti-censorship site that claimed that Outcast's closure had been "Godfrey's first victim".
Mr Baker said the British position could harm free speech on the internet as it gives an economic incentive for companies to withdraw messages as soon as a complaint is made, whether or not they are libellous.
"If they leave the message up they will either pay damages or lawyers," said Mr Baker. "If they take it down, nothing happens."
In the US on Monday, the supreme court upheld a previous ruling against a former boy scout who sought damages from the ISP Prodigy.
Alexander Lunney sued Prodigy after an impostor used his name to send threatening and profane messages to some of his neighbours in Westchester county. At the time, in 1994, Mr Lunney was 15 years old. One of the emails, sent to a local boy scout troop leader, was headlined: "HOW I'M GOING TO KILL YOU."
Following complaints from the recipients, Prodigy told Mr Lunney it was terminating his account "due to the transmission of obscene, abusive, threatening and sexually explicit material". But Mr Lunney was not even a Prodigy member.
A ruling by the New York court of appeals supported Prodigy's defence that it was not liable for messages sent over its system. "The public would not be well served by compelling an [ISP] to examine and screen millions of e-mail communications, on pain of liability for defamation," it said."We are unwilling to deny Prodigy the common law qualified privilege afforded to telephone and telegraph companies."
A disappointed Robert Lunney, the father of the plaintiff, criticised "the imperfect world" of the US legal system. "You and I can be the victim of something like this tomorrow _ The courts have given the internet providers full immunity," he said.
A Demon spokesperson, defending the company before its settlement in the Godfrey case, said: "If someone insulted you in a pub, would you sue the pub owner for housing the defamatory remark?"
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