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.

The BBB in Florida
lists
a corporate number for MagicJack, but while the customer
care department has a webchat service, it does not
appear to have a public telephone number of its own.

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.