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Special Feature: Pleading Bar Raised for Antitrust Plaintiffs

Friday, May 25, 2007

By Carole Handler of Foley & Lardner

Carole E. Handler is vice chair of the IP Litigation Practice at Foley & Lardner. Ms. Handler is also a member of the Trademark, Copyright & Advertising and Antitrust Practices, as well as the Entertainment & Media Industry Team.

Ms. Handler has tried numerous entertainment, trademark, copyright, and antitrust cases in state and federal courts in California, New York and Pennsylvania. Several of her most recent significant cases include representing Marvel Enterprises in its battle to reclaim the motion picture rights to its signature character "Spider-Man" and protecting the right to copyrighted characters in online gaming, as well as establishing the motion picture industry's exclusive rights to control the distribution and performance of their copyrighted works in new media. Her primary fields of practice are copyright in new media, antitrust, and the interface of antitrust and intellectual property.

Her experience includes several significant antitrust cases involving motion picture licensing and distribution, energy, pharmaceuticals, medical devices and other industries. She has done antitrust work for the National Basketball Association as well as for the major motion picture studios and has represented the studios, including defending major studios against "block booking" claims. Ms. Handler also led a pro bono jury trial on behalf of noted Holocaust rescuer Irene Gut Opdyke, who had been deprived of the rights to her life story.

Ms. Handler was named one of the "Top 50 Women Litigators in California" by Daily Journal Extra for the past six years. In 2001, Ms. Handler was named one of the "Lawyers of the Year" by California Lawyer. In addition, she was selected for inclusion in the 2007 edition of The Best Lawyers in America®. She is an adjunct professor of antitrust and intellectual property law at the University of Southern California. She has also taught at UCLA Law School. Ms. Handler reviews all Ms. Magazine articles for libel and copyright purposes.

Before the Supreme Court’s decision this week in Bell Atlantic Corp. v. Twombly, No. 05 -1126 (May 21, 2007) two longstanding propositions of antitrust law were unquestioned. The first, that parallel conduct by competitors, standing alone, may be circumstantial evidence of an illegal anticompetitive agreement, but in and of itself, does not violate the Sherman Act, remains unchanged. The second, however, has been drastically altered.

Until this past week, antitrust (and other) plaintiffs could reasonably assume that a complaint setting forth "a short and plain statement of the claim," Rule 8 (a) (2), Fed. R. Civ. P., would not be dismissed for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim...." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Indeed, the proposition that only general notice of a claim, to be substantiated later through the discovery process, seemed beyond question. Such a rule has been particularly important in antitrust cases like Bell Atlantic, in which secret agreements between competitors not to compete, of which there is only circumstantial evidence, are alleged. Demonstrating what may be a newly heightened pro-business orientation, the Supreme Court has now imposed a far stiffer burden on plaintiffs in federal court in antitrust cases and non-antitrust cases alike.

Citing the substantial expense to the parties generated by antitrust litigation, Slip Op. at 11, id. at 11, the Court tightened federal pleading standards, ruling that a plaintiff in federal court must allege sufficient facts -- not merely conclusions -- that, if proven, would provide grounds for the plaintiffs’ claims for relief. Furthermore, those facts must suggest "plausible grounds" for the claim. In sum, the Court has imposed a new "plausible suggestion standard" at the earliest pleading stage, making it far more difficult for antitrust and other plaintiffs to proceed. Indeed, in antitrust cases involving parallel conduct, it may be particularly difficult to withstand a motion to dismiss.

In Bell Atlantic, plaintiffs had claimed that the regional bell operating companies, after the 1984 breakup of AT&T, had conspired not to compete with one another and to quash the development of local exchange carriers. The complaint described the regional companies’ parallel behavior and alleged that such identical action was the result of an agreement, not simply a common and justifiable response to economic conditions that affected all the companies. The district court dismissed the complaint but the Court of Appeals for the Second Circuit reversed, concluding that federal pleading rules only required allegations sufficient to give notice of the claim to allow the plaintiffs to obtain additional facts in discovery. The Supreme Court reversed.

In its decision, the Court strongly emphasized the costly nature of the discovery process and the burden that it places on antitrust defendants. Noting that "the threat of discovery expense will push cost conscious defendants to settle even anemic cases..., it is only by taking care to require allegations that reach the level suggesting conspiracy that we can hope to avoid the potentially enormous expense of discovery in cases with no reasonably founded hope that the [discovery] process will reveal relevant evidence to support a section one claim." Id. at 13 (internal quotation marks and citations omitted). In a passionate dissent, Justice Stevens, joined by Justice Ginsberg, strongly disagreed. Indeed, they accused the majority of amending the federal rules by fiat. As to the majority’s solicitude for defendants, the dissent argued that effective case management in the lower courts could prevent abuses. Particularly in antitrust cases, where proof may be concealed, Justice Stevens argued that "a judicial opinion that the charge is not ‘plausible’" is no substitute for development of a full record. Dissent, Slip Op. at 1. And he noted that "the transparent policy concern that drives the decision is the interest in protecting antitrust defendants -- who in this case are some of the wealthiest corporations in our economy -- from the burdens of pretrial discovery." Dissent, Slip Op. at 27. The decision will play out in the lower courts , where antitrust plaintiffs may well face -- and succumb to -- increasing numbers of motions to dismiss.

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