Distribution, Competition, and Antitrust / Intellectual Property (IP) Law

A Useful Reminder About Sham Litigation as Exclusionary Conduct

In Surface Supplied, Inc. v. Kirby Morgan Dive Systems, Inc., 2013 U.S. Dist. LEXIS 143478 (N.D. Cal. Oct. 3, 2013) (Chesney, J.), the Court dismissed attempted monopolization and monopolization counterclaims with leave to amend. The Court found a number of defects in the claims, which were grounded in allegations that Kirby had filed anticompetitive litigation.

The Court drew a sharp line between two types of sham litigation claims. If the alleged anticompetitive behavior consists of bringing a single sham lawsuit (or a small number of such suits), the antitrust plaintiff must demonstrate that the lawsuit was (1) objectively baseless and (2) a concealed attempt to interfere with the plaintiff’s business relationships. Kottle v. Nw. Kidney Centers, 146 F.3d 1056, 1060 (9th Cir. 1988). On the other hand, if the alleged anticompetitive behavior is the filing of a series of lawsuits, the question becomes not whether any one of them has merit – some may turn out to, just as a matter of chance – but whether they are brought pursuant to a policy of starting legal proceedings without regard to the merits and for the purpose of injuring a market rival. See id.

SSI alleged a “pattern and practice” of filing a series of lawsuits, but identified only two. Therefore, the Court held, it had not alleged a series-type sham litigation claim. But if SSI intended to rest its claim on anticompetitive behavior from the two lawsuits it expressly referenced, it failed to plead any facts showing those lawsuits to be objectively baseless. “In sum, SSI fails to adequately plead the first element of a claim for attempt to monopolize.”  (The monopolization claim failed for the same reason.)

In short, “sham” litigation claims require appropriate factual support – conclusory, naked allegations are often insufficient.

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