Ohio Supreme Court Adopts “Objectively Baseless” Test for Sham Litigation Claims

Guest Commentary

by Thomas J. Collin and Darcy M. Brosky, Thompson Hine LLP*

The Ohio Supreme Court held in American Chemical Society v. Leadscope, Inc., 2012 Ohio LEXIS 2236 (Sept. 18, 2012), that a firm suing for unfair competition based on a legal action must show both that the defendant had a subjective intent to injure it and that the action was objectively baseless.  The court adopted the U.S. Supreme Court’s test for liability for sham litigation under the antitrust laws.  The decision is important because it resolves uncertainty about liability for such a claim under Ohio law.  The lower court had held that liability could stand on proof of a subjective intent to injure alone.

The case arose when the American Chemical Society (“ACS”) sued former employees and their new company, Leadscope, Inc., (collectively, “Leadscope”) in the Franklin County Court of Common Pleas for breach of contract and trade secret theft.  Leadscope counterclaimed for defamation, tortious interference and unfair competition, alleging that ACS had filed the action in bad faith with the intent of destroying it.

The jury rejected ACS’s claims and returned a verdict for Leadscope on the counterclaims.  The trial judge had instructed the jury that it could find unfair competition if ACS had “committed malicious acts by way of litigation in the courts, or if you find litigation was not founded upon good faith, but was instituted with the intent and purpose of harassing and injuring a rival.”  The Tenth District Court of Appeals affirmed the $26.5 million judgment, rejecting ACS’s argument that Leadscope had to prove, also, that the claims were objectively baseless.

The Ohio Supreme Court agreed with ACS’s argument.  It followed the U.S. Supreme Court’s application of the Noerr-Pennington doctrine to sham litigation claims in Professional Real Estate Investors v. Columbia Pictures Industries, 508 U.S. 49 (1993).  The doctrine shields a firm from antitrust liability for petitioning or other First Amendment activity, and the Court there held that an antitrust plaintiff must show both an objectively meritless claim and a subjective motivation by the defendant to interfere with the business relationships of a competitor.  The Ohio court approved the test, noting that it should be equally applicable to a “case involving unfair competition claims based upon malicious litigation.” 2012 Ohio LEXIS 2236, at *21 n.2.  It held that a plaintiff must prove that litigation “is objectively baseless and that the opposing party had the subjective intent to injure the party’s ability to be competitive.”  Id. at *24.  After independently reviewing the record under this new standard, the court held that the evidence supported the jury’s liability finding.

For firms doing business in Ohio, this is a significant clarification of the law, especially given the increasing frequency of unfair competition counterclaims in tort and contract actions.  The ruling also underscores the need for evidence of probable cause to rebut a sham litigation claim.  In affirming the unfair competition verdict, the court observed that there was no evidence that ACS “possessed anything more than speculation” to support the trade secret claim at the time it filed the action.  Id. at *33.

*Mr. Collin is a partner in the firm and Practice Group Leader, Competition, Antitrust & White-Collar Crime; Ms. Brosky is an associate with the firm.

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