Certiorari to the U.S. Court of Appeals for the Ninth Circuit
No. 91-1043
Argued November 2, 1992
Decided May 3, 1993
JUSTICE THOMAS delivered the opinion of the Court.
This case requires us to define the "sham" exception to the doctrine of antitrust immunity first identified in Eastern Railroad President Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961), as that doctrine applies in the litigation context. Under the sham exception, activity "ostensibly directed toward influencing governmental action" does not qualify for Noerr immunity if it "is a mere sham to cover . . . an attempt to interfere directly with the business relationships of a competitor." Id., at 144. We hold that litigation cannot be deprived of immunity as a sham unless the litigation is objectively baseless. The Court of Appeals for the Ninth Circuit refused to characterize as sham a lawsuit that the antitrust defendant admittedly had probable cause to institute. We affirm.
Petitioners Professional Real Estate Investors, Inc., and Kenneth F. Irwin (collectively, PRE) operated La Mancha Private Club and Villas, a resort hotel in Palm Springs, California. Having installed videodisc players in the resort's hotel rooms and assembled a library of more than 200 motion picture titles, PRE rented videodiscs to guests for in-room viewing. PRE also sought to develop a market for the sale of videodisc players to other hotels wishing to offer in-room viewing of prerecorded material. Respondents, Columbia Pictures Industries, Inc., and seven other major motion picture studios (collectively, Columbia), held copyrights to the motion pictures recorded on the videodiscs that PRE purchased. Columbia also licensed the transmission of copyrighted motion pictures to hotel rooms through a wired cable system called Spectradyne. PRE therefore competed with Columbia not only for the viewing market at La Mancha, but also for the broader market for in-room entertainment services in hotels.
In 1983, Columbia sued PRE for alleged copyright infringement through the rental of videodiscs for viewing in hotel rooms. PRE counterclaimed, charging Columbia with violations of 1 and 2 of the Sherman Act, 26 Stat. 209, as amended, 15 U.S.C. 1-2, [FN1] and various state law infractions. In particular, PRE alleged that Columbia's copyright action was a mere sham that cloaked underlying acts of monopolization and conspiracy to restrain trade.
On remand, Columbia sought summary judgment on PRE's antitrust claims, arguing that the original copyright infringement action was no sham, and was therefore entitled to immunity under Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., supra. Reasoning that the infringement action "was clearly a legitimate effort and therefore not a sham," 1990-1 Trade Cases 68,971, p. 63,242, 1990 WL 56166 (CD Cal. 1990), the District Court granted the motion:
The Court of Appeals affirmed. 944 F.2d 1525 (CA9 1991). After rejecting PRE's other allegations of anticompetitive conduct, see id., at 1528-1529, [FN2] the court focused on PRE's contention that the copyright action was indeed sham and that Columbia could not claim Noerr immunity. The Court of Appeals characterized "sham" litigation as one of two types of "abuse of . . . judicial processes": either `misrepresentations . . . in the adjudicatory process'" or the pursuit of "`a pattern of baseless, repetitive claims'" instituted "`without probable cause, and regardless of the merits.'" 944 F.2d at 1529 (quoting California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 513, 512 (1972)). PRE neither "allege[d] that the [copyright] lawsuit involved misrepresentations" nor "challenge[d] the district court's finding that the infringement action was brought with probable cause, i.e., that the suit was not baseless." 944 F.2d, at 1530. Rather, PRE opposed summary judgment solely by arguing that "the copyright infringement lawsuit [was] a sham because [Columbia] did not honestly believe that the infringement claim was meritorious." Ibid.
The courts of appeals have defined "sham" in inconsistent and contradictory ways. [FN3] We once observed that "sham" might become "no more than a label courts could apply to activity they deem unworthy of antitrust immunity." Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 508, n. 10 (1988). The array of definitions adopted by lower courts demonstrates that this observation was prescient.
Other Courts of Appeals would regard some meritorious litigation as sham. The Sixth Circuit treats "genuine [legal] substance" as raising merely "a rebuttable presumption" of immunity. Westmac, Inc. v. Smith, 797 F.2d 313, 318 (1986) (emphasis added), cert. denied, 479 U.S. 1035 (1987). The Seventh Circuit denies immunity for the pursuit of valid claims if "the stakes, discounted by the probability of winning, would be too low to repay the investment in litigation." Grip-Pak, Inc. v. Illinois Tool Works, Inc., 694 F.2d 466, 472 (1982), cert. denied, 461 U.S. 958 (1983). Finally, in the Fifth Circuit, "success on the merits does not . . . preclude" proof of a sham if the litigation was not "significantly motivated by a genuine desire for judicial relief." In re Burlington Northern, Inc., 822 F.2d 518, 528 (1987), cert. denied sub nom. Union Pacific R. Co. v. Energy Transportation Systems, Inc., 484 U.S. 1007 (1988).
PRE contends that the Ninth Circuit erred in holding that an antitrust plaintiff must, as a threshold prerequisite. . ., establish that a sham lawsuit is baseless as a matter of law. Brief for Petitioners 14. It invites us to adopt an approach under which either "indifference to . . . outcome," ibid., or failure to prove that a petition for redress of grievances "would . . . have been brought but for [a] predatory motive," Tr. of Oral Arg. 10, would expose a defendant to antitrust liability under the sham exception. We decline PRE's invitation.
Those who petition government for redress are generally immune from antitrust liability. We first recognized in Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961), that the Sherman Act does not prohibit . . . persons from associating together in an attempt to persuade the legislature or the executive to take particular action with respect to a law that would produce a restraint or a monopoly. Id., at 136. Accord, Mine Workers v. Pennington, 381 U.S. 657, 69 (1965). In light of the government's "power to act in [its] representative capacity" and "to take actions . . . that operate to restrain trade," we reasoned that the Sherman Act does not punish "political activity" through which "the people . . . freely inform the government of their wishes." Noerr, 365 U.S., at 137. Nor did we "impute to Congress an intent to invade" the FirstAmendment right to petition. Id., at 138.
Noerr, however, withheld immunity from "sham" activities because "application of the Sherman Act would be justified" when petitioning activity, "ostensibly directed toward influencing governmental action, is a mere sham to cover . . . an attempt to interfere directly with the business relationships of a competitor." Id., at 144. In Noerr itself, we found that a publicity campaign by railroads seeking legislation harmful to truckers was no sham in that the "effort to influence legislation" was "not only genuine but also highly successful." Ibid.
In California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508 (1972), we elaborated on Noerr in two relevant respects. First, we extended Noerr to "the approach of citizens . . . to administrative agencies . . . and to courts." 404 U.S., at 510. Second, we held that the complaint showed a sham not entitled to immunity when it contained allegations that one group of highway carriers "sought to bar . . . competitors from meaningful access to adjudicatory tribunals and so to usurp that decisionmaking process" by "institut[ing] . . . proceedings and actions . . . with or without probable cause, and regardless of the merits of the cases." Id., at 512 (internal quotation marks omitted). We left unresolved the question presented by this case -- whether litigation may be sham merely because a subjective expectation of success does not motivate the litigant. We now answer this question in the negative, and hold that an objectively reasonable effort to litigate cannot be sham regardless of subjective intent. [FN4]
Nothing in California Motor Transport retreated from these principles. Indeed, we recognized that recourse to agencies and courts should not be condemned as sham until a reviewing court has "discern[ed] and draw[n]" the "difficult line" separating objectively reasonable claims from "a pattern of baseless, repetitive claims . . . which leads the factfinder to conclude that the administrative and judicial processes have been abused." 404 U.S., at 513. Our recognition of a sham in that case signifies that the institution of legal proceedings "without probable cause" will give rise to a sham if such activity effectively "bar[s] ... competitors from meaningful access to adjudicatory tribunals and so ... usurp[s] th[e] decisionmaking process." Id., at 512.
Since California Motor Transport, we have consistently assumed that the sham exception contains an indispensable objective component. We have described a sham as "evidenced by repetitive lawsuits carrying the hallmark of insubstantial claims." Otter Tail Power Co. v. United States, 410 U.S. 366, 380 (1973) (emphasis added). We regard as sham "private action that is not genuinely aimed at procuring favorable government action," as opposed to "a valid effort to influence government action." Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. at, 500, n. 4. And we have explicitly observed that a successful "effort to influence governmental action . . . certainly cannot be characterized as a sham." Id., at 502. See also Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623, 645 (1977) (BLACKMUN, J., concurring in result) (describing a successful lawsuit as a "genuine attemp[t] to use the . . . adjudicative process legitimately," rather than "`a pattern of baseless, repetitive claims'"). Whether applying Noerr as an antitrust doctrine or invoking it in other contexts, we have repeatedly reaffirmed that evidence of anticompetitive intent or purpose, alone, cannot transform otherwise legitimate activity into a sham. See, e.g., FTC v. Superior Court Trial Lawyers Assn., 493 U.S. 411, 424 (1990); NAACP v. Claiborne Hardware Co., 458 U.S. 886, 913-914 (1982). Cf. Vendo, supra, at 635-636, n. 6, 639, n. 9 (plurality opinion of REHNQUIST, J.); id., at 644, n., 645 (BLACKMUN, J., concurring in result). Indeed, by analogy to Noerr's sham exception, we held that even an "improperly motivated" lawsuit may not be enjoined under the National Labor Relations Act as an unfair labor
practice unless such litigation is "baseless." Bill Johnson's Restaurants, Inc. v. NLRB, 461 U.S. 731, 743-744 (1983). Our decisions therefore establish that the legality of objectively reasonable petitioning "directed toward obtaining governmental action" is "not at all affected by any anticompetitive purpose [the actor] may have had." Noerr, 365 U.S., at 140, quoted in Pennington, supra, at 669.
Our most recent applications of Noerr immunity further demonstrate that neither Noerr immunity nor its sham exception turns on subjective intent alone. In Allied Tube, supra, at 503, and FTC v. Trial Lawyers, supra, at 424, 427, and n. 11, we refused to let antitrust defendants immunize otherwise unlawful restraints of trade by pleading a subjective intent to seek favorable legislation or to influence governmental action. Cf. National Collegiate Athletic Assn. v. Board of Regents of Univ. of Okla., 468 U.S. 85, 101, n. 23 (1984) ("[G]ood motives will not validate an otherwise anticompetitive practice"). In Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365 (1991), we similarly held that challenges to allegedly sham petitioning activity must be resolved according to objective criteria. We dispelled the notion that an antitrust plaintiff could prove a sham merely by showing that its competitor's "purposes were to delay [the plaintiff's] entry into the market and even to deny it a meaningful access to the appropriate . . . administrative and legislative fora." Id., at 381 (internal quotation marks omitted). We reasoned that such inimical intent "may render the manner of lobbying improper or even unlawful, but does not necessarily render it a `sham.'" Ibid. Accord, id., at 398 (STEVENS, J., dissenting).
In sum, fidelity to precedent compels us to reject a purely subjective definition of "sham." The sham exception so construed would undermine, if not vitiate, Noerr. And despite whatever "superficial certainty" it might provide, a subjective standard would utterly fail to supply "real `intelligible guidance.'" Allied Tube, supra, at 508, n. 10.
Our original formulation of antitrust petitioning immunity required that unprotected activity lack objective reasonableness. Noerr rejected the contention that an attempt "to influence the passage and enforcement of laws" might lose immunity merely because the lobbyists' "sole purpose . . . was to destroy [their] competitors." 365 U.S., at 138. Nor were we persuaded by a showing that a publicity campaign "was intended to and did in fact injure [competitors] in their relationships with the public and with their customers," since such "direct injury" was merely "an incidental effect of the . . . campaign to influence governmental action." Id., at 143. We reasoned that "[t]he right of the people to inform their representatives in government of their desires with respect to the passage or enforcement of laws cannot properly be made to depend upon their intent in doing so." Id., at 139. In short, "Noerr shields from the Sherman Act a concerted effort to influence public officials regardless of intent or purpose." Pennington, 381 U.S., at 670.
We now outline a two-part definition of "sham" litigation. First, the lawsuit must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits. If an objective litigant could conclude that the suit is reasonably calculated to elicit a favorable outcome, the suit is immunized under Noerr, and an antitrust claim premised on the sham exception must fail. [FN5] Only if challenged litigation is objectively meritless may a court examine the litigant's subjective motivation. Under this second part of our definition of sham, the court should focus on whether the baseless lawsuit conceals "an attempt to interfere directly with the business relationships of a competitor," Noerr, supra, at 144 (emphasis added), through the "use [of] the governmental process -- as opposed to the outcome of that process -- as an anticompetitive weapon," Omni, 499 U.S., at 380 (emphasis in original). This two-tiered process requires the plaintiff to disprove the challenged lawsuit's legal viability before the court will entertain evidence of the suit's economic viability. Of course, even a plaintiff who defeats the defendant's claim to Noerr immunity by demonstrating both the objective and the subjective components of a sham must still prove a substantive antitrust violation. Proof of a sham merely deprives the defendant of immunity; it does not relieve the plaintiff of the obligation to establish all other elements of his claim.