The ruling against AOL came as part of a two-year-old case filed by electronics design and manufacturing company Nam Tai Electronics, alleging that 51 unknown individuals had committed libel, trade libel and violations of the unfair business practices statutes by posting defamatory messages about the company's publically traded stock on an Internet message board.
One of the individuals was revealed to be an AOL subscriber and Nam Tai acquired a subpoena requesting that the world's largest Internet service provider hand over the person's identity. AOL filed a motion to quash the subpoena, however, contending that the disclosure would "infringe upon the well-established First Amendment right to speak anonymously".
The Californian court handling the case denied the motion, and AOL appealed against the ruling. Experts believe the court's decision to uphold the lower court's ruling is significant in that the ISP's home state decided not to get involved in what could be a sticky free speech issue.
An AOL spokesman said that the company was disappointed with the court's decision.
"We feel very strongly that there are critical, important First Amendment issues at stake in this case," said AOL spokesman Nicholas Graham.
David Sobel, general counsel at the Electronic Privacy Information Center (EPIC) said that the court had "punted on a very controversial issue" by upholding the court's ruling.
If AOL is forced to turn over the identity of its subscriber, Sobel said that the move could affect how users view free speech online.
AOL was given 10 days to ask the court to reconsider its opinion and, if the request is denied, the case could be appealed to the US Supreme Court.
The company is still "in the process of considering options", according to Graham.