Two Recent Papers on Sham Litigation Antitrust Suits

Following up from my Monday post, below are two recent, quite interesting papers addressing the topic of sham litigation antitrust suits.

The first is by Nicholas Hakun and is titled Strategic Litigation and Antitrust Petitioning Immunity, 12 UC Irvine L. Rev. 865, 900 (2022).  Here is a link, and here is the abstract:

            The First Amendment allows a business to sue its competitor even if its goal is to destroy them. It should not, however, protect a lawsuit designed solely to inflict harm collateral to the proceedings. Unfortunately, courts routinely fail to distinguish legitimate suits from predatory shams and have no solution for the litigant whose claims simultaneously achieves both goals.

Sophisticated businesses are weaponizing litigation to inflict harm on their competitors and being rewarded with antitrust petitioning immunity thanks to the Noerr-Pennington doctrine. After decades of divergence between the courts and economists, the doctrine’s sham exception has been outsmarted. Economic analysis proves the sham exception is woefully underinclusive and that more complex predatory suits are being inappropriately immunized. The Third Circuit’s recent AbbVie decision highlights how the existing sham standard sometimes forces courts into anticompetitive outcomes. My proposal is an aggressive, economically robust solution to properly, and fairly, prosecute predatory litigation.

The second, available on ssrn, is by James C. Cooper and Emily Kral, and is titled Too Much Sham Pain.  Here is a link, and here is the abstract:

            The right to “petition the government for a redress of grievances” is vital to a functioning democracy. The preservation of competitive markets also provides tremendous benefits to consumers in the form of lower prices and increased quality. On occasion, however, these important values come into conflict when petitioning harms marketplace rivals. Recognizing this potential conflict, the Supreme Court fashioned the Noerr-Pennington doctrine, which immunizes from antitrust scrutiny legitimate attempts to influence all three branches of government. But so-called “sham” petitioning— engaging the judicial, executive, or legislative branch only as a subterfuge to gain market power via the collateral damage imposed on a rival rather than to vindicate First Amendment rights—can cause real pain for consumers. For example, drug companies have used Noerr to shield their attempts to exploit the Hatch-Waxman Act to impose higher drug prices on consumers through reverse settlements and improper Orange Book listings. In two important cases twenty years apart—California Motor Transport and Professional Real Estate Investors (PREI)—the Supreme Court fleshed out the sham exception but left some important ambiguities. Not surprisingly, the lack of clarity led to a circuit split: while all circuits agree that PREI is the correct standard when entertaining a single petition, they disagree over the standard for determining whether a pattern of petitions is a sham. In this paper, we argue that the two standards can coexist once one understands that the optimal standard for a sham must adjust to its informational environment. Employing error-cost analysis, we derive a likelihood ratio test for sham petitioning that takes into account the increased information that accompanies a larger number of petitions. We show that when there is a sufficiently large number of petitions, lowering the threshold showing for a sham can increase the accuracy of the sham test by dramatically increasing the statistical power of courts to detect sham petitioning (reduce type-II errors), while increasing the level of protection for First Amendment petitioning (reduce type-I errors). Accordingly, maintaining the stringent PREI standard when faced with multiple petitions merely squanders valuable information that could potentially save consumers from suffering the anticompetitive pain that comes with sham petitioning. Importantly, this test maintains a necessary objective component as commanded by PREI. If the test for a sham is too stringent, a substantial amount of anticompetitive behavior that does not vindicate First Amendment values may be immunized and go unaddressed. Thus, getting Noerr’s balance between First Amendment and competition values right is key to prevent consumers from suffering too much sham pain.