WHITE PLAINS, N.Y. -- For Prodigy Services Co., it seems, no good deed goes unpunished.
The joint venture of Sears, Roebuck & Co. and International Business Machines Corp. long has staked out a position as the family-oriented on-line service, where computers and humans try strip obscene and offensive messages from its network.
That policy came back to haunt White Plains, N.Y.-based Prodigy last week, when a New York state court judge found the company exercised editorial control and therefore must defend itself against a $200 million libel suit by Stratton Oakmont Inc. over comments "posted" by a Prodigy subscriber on a computer bulletin board.
Other services such as America Online Inc. and CompuServe could find themselves in a similar pickle, industry experts say, because a pending bill in the U.S. Senate would require them to exercise "good faith, reasonable" efforts to filter obscene and objectionable material from the thousands of messages daily coursing through their networks.
"Should this lawsuit continue, many services would be reluctant to provide discussion groups or would monitor speech so closely that subscribers would be reluctant to use those services," said Dan Duncan, assistant vice president of government relations at the Information Industry Association, a trade group that includes Prodigy and America Online.
"If this case comes down against Prodigy, I would expect on-line service providers to seek legislation to exempt them from such liability," Mr. Duncan said.
Not everyone is so concerned. Rex Heinke, a Los Angeles lawyer and expert on electronic libel, said even though Stratton Oakmont prevailed in state court, Prodigy may win on appeal.
"While it's an important ruling because there's virtually no law here, it's just a trial court decision," he said.
If Prodigy loses, Mr. Heinke added, the company probably can defend itself by citing Supreme Court rulings that could force Stratton Oakmont to prove that Prodigy knew what it was publishing was false.
That may well be an impossible task, because Prodigy "prints" more than 60,000 messages a day and can't possibly read each one to determine whether it's true or false, Mr. Heinke said.
"If you get something that says 'Joe Blow is a bank robber,' what do you do?" Mr. Heinke asked. "If it's true, you're safe, but if it's false, it's defamatory. So do you go to the courthouse in Texas to find out? No way."
Stratton Oakmont argued that Prodigy set itself up for a libel suit because that was, in fact, its policy. Burned by criticism over anti-Semitic messages in 1991, Prodigy imposed one of the industry's strictest monitoring systems, with editors reading each message before allowing it on the network.
Lake Success, N.Y.-based Stratton Oakmont, which settled Securities and Exchange Commission charges without admitting or denying guilt last year, sued Prodigy in November after a subscriber accused it of fraud on Prodigy's "Money Talks" discussion group.
Prodigy pays an independent contractor, Charles Epstein, to run the discussion group and Mr. Epstein has authority to remove messages from the system.
"Part of his job, and Prodigy requires him to do this, is to make sure that nothing violates Prodigy's content guidelines," said Stratton Oakmont attorney Jacob Zamansky.
Prodigy argues that it abandoned its monitoring program in 1992 after the volume of messages got too high. Prodigy spokesman Brian Ek said the service now can only run the messages through a computer to check for obvious obscenities. Subscribers who are offended by a specific message are expected to call a moderator to have it removed, Mr. Ek said, "and in this case that didn't happen."
Mr. Zamansky said he called several people at Prodigy in an unsuccessful attempt to have the message removed.
The New York ruling could impact other on-line services, which also employ free-lance moderators to monitor discussion groups. They are trying to distance themselves from Prodigy, saying they don't screen content.
"CompuServe merely acts as a conduit for information," said Daphne Kent, spokeswoman for CompuServe, a unit of Kansas City, Mo.-based H & R Block Inc. "We don't censor."
CompuServe does pay people to moderate its discussion groups, Ms. Kent said, but "they're autonomous and they run those forums as they see fit."
CompuServe won a key ruling in 1991 when a federal court in New York determined it was more like a bookstore or newsstand than a publisher and thus not responsible for the information it carried.
Other court cases haven't been so clear.
In another lawsuit involving Prodigy's "Money Talk," Peter DeNigris paid $1 to settle a suit by MEDPhone Corp. over allegedly libelous comments he made in 1993.
And computer columnist Peter Brock last year settled a libel suit by Suarez Industries Inc. over comments he made on the Internet rather than fight the case through the courts.
Some say the very concept of controlling the sprawling information highway is unworkable.
"Everybody's so overextended that to have to hire a ratings board would have a very chilling effect on the industry," said Peter Krasilovsky, analyst for Arlen Communications. "I don't think it's going to happen."