n what was apparently the first Internet defamation case to involve both an anonymous plaintiff and anonymous defendants, the Supreme Court of Virginia refused to grant an unidentified company access to America Online's confidential subscriber information unless the firm agreed to reveal its identity. 

The plaintiff in the case, named in court documents only as "Anonymous Publicly Traded Company," dropped its efforts to subpoena AOL after agreeing on Wednesday to the dismissal of a related case in Indiana. Douglas M. Palais, the lawyer for the plaintiff company, declined to explain why his client had dropped its case. 

While the litigation is no longer pending, the ruling handed down in Virginia could set a precedent for similar lawsuits across the country. In its decision, the Virginia court said that an anonymous plaintiff could be given subpoena power only if it would suffer exceptional harm, such as a social stigma or extraordinary economic retaliation, as a result of revealing its identity. 

The plaintiff had asserted that its unmasking would lead to unspecified economic damages. Those assertions were not enough to persuade the court, however. In its March 2 ruling, written by Justice Donald W. Lemons, the court said the firm had failed to provide sufficient justification for its veiled appearance. 

"In the case before us, the sole reason [the anonymous plaintiff} has offered in support of its request to proceed anonymously is fear of economic harm. While reasonable concern over potential economic harm is not excluded from factors to consider, [the anonymous plaintiff] has not borne its burden to show special circumstances justifying anonymity," Justice Lemons wrote. 

Free speech advocates have hailed the ruling, which they say properly recognizes the constitutional presumption of openness in American legal proceedings. 

"If you are going to use courts funded by tax dollars and you want to have a judge adjudicate legal rights that have an impact on everybody, you have to do that in open court so the press can scrutinize you and the public is aware of what's going on," said Megan E. Gray, a Los Angeles-based attorney who has defended anonymous clients in Internet defamation cases. 

While the Virginia and Indiana cases were unique in also featuring an anonymous plaintiff, anonymous defendants are nothing new in Internet law. In recent years, anonymous defendants have become punching bags in increasingly popular "cybersmear" suits. In more than 120 cases, legal experts estimate, companies have filed lawsuits against a "John Doe" for posting anonymous and allegedly defamatory comments on cyberspace message boards. 

The name John Doe appears in lawsuits as a kind of place holder when the true identity of a defendant is temporarily unknown. In Internet libel cases, the defendant may be unknown because he communicates on the Internet using a screen name or pseudonym. In many recent cases, the parties filing such John Doe cybersmear suits have been corporations that feel aggrieved by the unknown defendant's blistering postings. 

Critics have complained that most such lawsuits are not only frivolous but dangerous to free speech. The game, they say, goes like this: plaintiffs file a John Doe lawsuit, issue a subpoena against the Internet Service Provider used by the John Doe for e-mail service and use the legal proceedings to unmask the anonymous defendant. The result, free speech advocates claim, is a chilling of individuals' rights to speak anonymously in cyberspace. 

Defenders of the practice claim that many John Doe lawsuits are based on serious allegations of wrongdoing, such as libel or disclosure of confidential information by current or former employees in breach of employment contracts. Anonymity, they argue, should not be used as a weapon to evade accountability. 

The Virginia case began when the plaintiff company filed a lawsuit in state court in Indiana in February, 1999, claiming that five unidentified defendants, whom the company believed to be current or former employees, had made online comments that were defamatory or violated employment contracts forbidding them to disclose confidential company information. Apparently accepting the anonymous plaintiff's argument that disclosure of its name would cause it "irreparable harm," the Indiana court allowed the company to proceed anonymously until the defendants had been uncovered and named. 

Granted this identity shield, the company then sought to have Virginia court officials issue a subpoena directing Dulles, Va.-based AOL to reveal the names of the four defendants who had AOL accounts. AOL subsequently asked a Virginia trial court to quash the subpoena, and when that effort failed, it turned to the state's highest court. 

Lawyers for AOL successfully argued that the lower court disregarded the principle that parties seeking to use the powers of courts must do so publicly except in rare circumstances that were not present in the case at hand. AOL also argued that a victory for the anonymous company would encourage a spate of abusive John Doe lawsuits. 

Patrick J. Carome, lead lawyer for AOL and a partner at the Washington, D.C.-based law firm Wilmer, Cutler & Pickering, argued that one of few checks on such frivolous claims is that a plaintiff must litigate in the light of public scrutiny. Remove that requirement, he said, and there would be a deluge of abusive anonymous v. anonymous cases. 

Lyrissa C. Lidsky, a professor at the University of Florida Levin College of Law, in Gainesville, Florida, and an expert in disputes over anonymous speech online, said the decision is especially significant because it was issued in the home territory of AOL. As a result, Lidsky said, it will be very difficult for any future anonymous plaintiff to subpoena user files from the nation's largest Internet Service Provider. 

For their part, lawyers for the anonymous plaintiff asserted that the Virginia Supreme Court should have deferred as a matter of judicial courtesy to the ruling of the Indiana trial court. The company's lawyers also argued that the company should be allowed to act anonymously so as not to exacerbate the harm it has already suffered. 

"Our clients made a business judgment, right or wrong, that it would be harmful to the corporation and its shareholders to essentially tell the world at large that the corporation's confidential information is being circulated on the Net and that individuals at the corporation are being defamed and that the corporation cannot identify who the individuals are," said Palais, a lawyer for the company and a partner at McCandlish Kaine, a law firm in Richmond, Va. 

Palais further claimed that the subpoena risk is not as significant as some have claimed. The danger of abusive cases, even those spearheaded by some other anonymous plaintiffs, has been curbed by a recent trend in cyber John Doe cases, Palais said, as courts are increasingly being asked to determine whether the suits have merit before issuing subpoenas to unmask anonymous defendants. Indeed, that determination occurred at the trial level in Virginia, he said. 

Officially, little is known about the firm referred to in court papers as "Anonymous Publicly Traded Company." According to court documents, the firm has its principal place of business in Indianapolis, Indiana. But numerous messages posted on a Yahoo Finance Internet message board in late 1998 and early 1999 - messages which formed the basis for the defamation lawsuit and which are available in edited form as part of the public record -- point to Brightpoint, Inc., a leading global cellular telephone distributor based in Indianapolis. 

One allegedly defamatory message, for example, praised a "Mr. Howell" and criticized a "Mr. Bounsel . . . the CFO." The author of the message also wrote he was hopeful "CELL" stock would rise. Among Brightpoint's top executives are J. Mark Howell, president and chief operating officer, and Phillip A. Bounsall, executive vice president, chief financial officer and treasurer. The company's symbol on the NASDAQ securities exchange is CELL. 

Asked in a telephone interview earlier this week whether Brightpoint and "Anonymous Publicly Trade Company" were the same, Steven E. Fivel, executive vice president and general counsel for Brightpoint, said: "I can neither confirm nor deny that." Both Palais and Carome also declined comment on the identity of the plaintiff.