Demon Internet has paid £250,000 to settle a court case against a man who alleged he was libelled on discussion threads run by the company.

Laurence Godfrey took the UK internet service provider to court after allegedly defamatory postings about him appeared in newsgroups. It was the first case of its kind in the English courts and one that could have far-reaching implications for publishers of online material in the UK.

His action related to a message posted in 1997 on soc.culture.thai, purportedly coming from him and containing damaging allegations of a personal nature.

He said he had asked Demon to remove the message but the service provider had refused. The message was copied to its servers around the world and many other newsgroups.

In a case that Demon had previously said would affect the entire ethos of free speech on the internet, Dr Godfrey alleged that the company had failed to remove defamatory material about him from a newsgroup it hosted. The case hinged on whether Demon could be treated as the publisher of the material.

The case will affect other service providers, all of which host robust and often vicious newsgroups. But any moves among them to become more cautious about what they allow to be published will inflame the debate about freedom of speech on the net.

Under English law service providers are not held to have been the publishers of defamatory material providing they satisfy two criteria. They must prove they took reasonable care to ensure such material was not published, and, once alerted to a problem, took steps to resolve it.