The Canadian Supreme Court held that linking to third party content is not libel in Crookes v. Wikimedia Foundation, Inc. (Sup. Ct. Aug. 29, 2008). For a detailed discussion of the case, read Jeffrey D. Neuburger's post at Mediashift.
Since the court limited its ruling to the particular facts of the case, it left open the possibility of future libel claims based on linking where the link in question satisfies the publication requirement. In fact, the court provided a helpful hint to determine whether publication may be satisfied. Essentially, if the hyperlink to the alleged defamatory content is preceded or followed by commentary depicting, characterizing, or expanding upon the linked-to material, it may rise to the level of a publication.
If you've read this far you may be asking yourself, "who cares what a foreign court thinks? I live in the United States–foreign law doesn't apply to me."
The truth of the matter is that the U.S. Supreme Court cares and has been known to consider foreign law in rendering its decisions (read my brief post on the matter here). The odds of the U.S. Supreme Court considering a Canadian decision would seem to be higher as compared to other foreign decisions since Canada shares a common legal heritage with the U.S. and is our neighbor. Add to that the fact that internet law is new and challenging and the possibilities increase even further.
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