The Supreme Court in Borough of Duryea v. Guarnieri Signals a Retreat from Pre's Broad Deference to the Right to Petition

• Publication year: 2014
• Author: By Chris O'Connell

THE SUPREME COURT IN BOROUGH OF DURYEA V. GUARNIERI SIGNALS A RETREAT FROM PRE'S BROAD DEFERENCE TO THE RIGHT TO PETITION

By Chris O'Connell¹

I. INTRODUCTION

This spring marks the twenty-first anniversary of the U.S. Supreme Court's decision in Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc. ("PRE"),² a seminal case determining when one can sue one's competitor without antitrust scrutiny. The PRE Court, faced with an allegation that an anticompetitive lawsuit violated the Sherman Act,³ posited that a lawsuit is a petition to the judicial branch of government, protected by the First Amendment's Petition Clause.⁴ Because of this constitutional protection, the PRE Court held that only in narrow circumstances could a lawsuit against one's competitors be exposed to antitrust scrutiny.

Two decades later, the Court in its most recent right to petition case, Borough of Duryea v. Guarnieri,⁵ cast doubt on this critical First Amendment rationale. In Borough of Duryea, the Court limited the right of public employees to sue their employers in light of the substantial competing public interests that had to be balanced against those fostered by the Petition Clause.⁶ Furthermore, PRE's own author, Justice Thomas, declared in an opinion concurring in the judgment: "I seriously doubt that lawsuits are 'petitions' within the original meaning of the Petition Clause of the First Amendment."⁷ While this does not necessarily portend the death knell for PRE's First Amendment immunity for competitor litigation, it does demonstrate the evolving views of the justices on the scope of the Petition Clause, which invites a reappraisal of PRE's basic holdings and approach. This article concludes that Borough of Duryea represents a rejection of an absolute deference to the right to petition and that its more nuanced approach to that right necessitates a recalibration of PRE's broad First Amendment immunity for firms that sue competitors.

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II. THE PATH TO PRE

PRE was the latest in a line of cases in which the Supreme Court considered the protection of the Petition Clause for business conduct that otherwise might violate the antitrust laws.⁸ The cases covered petitioning to all branches of the government (legislative,⁹ executive,¹⁰ and judicial¹¹), at all levels of government (federal,¹² state,¹³ and local¹⁴). The principle that emerged from this line of cases was that a competitor—even a monopolist— could engage in anticompetitive activities with the intent to eliminate competition, without violating the Sherman Act as long as those activities constituted petitioning of the government under the First Amendment. This defense to antitrust liability came to be known as "Noerr immunity," or "Noerr-Pennington immunity," after the first cases to articulate the doctrine.¹⁵

The doctrine was originally developed in cases addressing petitioning to the legislative and executive branches of government. The Supreme Court reasoned that because the government has the authority to restrain or eliminate competition,¹⁶ the people must be free to urge the legislative and executive branches to enact restraints of trade.¹⁷ This principle applied even when those petitioning the government, with anticompetitive intent, sought anticompetitive legislation or action.¹⁸ A related rationale derived from the government's separation of powers. The Court cautioned against judicial branch intrusion into the decision-making processes of the legislative and executive branches.¹⁹ The Court ultimately declared that lawsuits, too, were First Amendment petitions to the government— the judicial branch itself—and were similarly entitled to immunity from antitrust scrutiny.²⁰

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Noerr immunity was not absolute, however. The Court developed a corresponding exception, known as the "sham" exception, which recognized that some ostensible petitioning fell outside of First Amendment protection.²¹ In Noerr, the Court's initial conception of "a mere sham" focused on conduct that could be deemed separate from attempts to influence legislative or executive officials—that is, conduct that was "nothing more than an attempt to interfere directly with the business relationships of a competitor."²² In later cases, the Court perceived the potential for sham within the petitioning process itself. A classic formulation of this kind of sham recognized the "use [of] the governmental process—as opposed to the outcome of that process—as an anticompetitive weapon."²³ The first case in which a complaint adequately pleaded a sham involved this kind of bad-faith petitioning: The antitrust defendants allegedly filed multiple administrative or judicial proceedings against competitors, "with or without probable cause and regardless of the merits of the cases."²⁴ In short, the sham exception to Noerr immunity recognizes that a fairly narrow interest in competition might trump the right to petition where governmental proceedings are clearly being abused in order to suppress competition.²⁵

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In PRE, the Supreme Court addressed the sham exception in the context of competitor-versus-competitor litigation. The central question was the relevance of a litigant's intent when its lawsuit against a competitor is challenged as a sham—that is, "whether litigation may be sham merely because a subjective expectation of success does not motivate the litigant."²⁶ The Court decided that anticompetitive intent alone was insufficient to support a finding of sham litigation; even further, a litigant's intent was irrelevant unless its lawsuit was first shown to be "objectively baseless."²⁷

In PRE, eight motion picture studios filed a copyright infringement lawsuit against a resort hotel operator ("PRE") that rented movie videos to guests to watch in their rooms.²⁸ The studios contended that PRE's rentals infringed their copyrights on the movies.²⁹ PRE denied infringement and counterclaimed under the Sherman Act, alleging that the studios' lawsuit "was a mere sham that cloaked underlying acts of monopolization and conspiracy to restrain trade."³⁰ At summary judgment, the movie studios lost their copyright action when the court ruled that movie rentals for in-room viewing did not constitute public performance of a copyrighted work in violation of the Copyright Act.³¹ The U.S. Court of Appeals for the Ninth Circuit affirmed.³²

On remand regarding PRE's antitrust counterclaims, the movie studios moved for summary judgment, invoking Noerr immunity for their copyright suit.³³ PRE argued that Noerr immunity was inapplicable because the studios "did not honestly believe that the infringement claim was meritorious" and their suit thus had been a sham.³⁴ This placed the studios' intent squarely at issue, and PRE sought further discovery on why the studios had sued.³⁵ The district court rejected PRE's argument, finding that the studios' lawsuit "was clearly a legitimate effort and therefore not a sham."³⁶ The court saw both subjective good faith and objective merit in the studios' suit: "It was clear from the manner in which the case was presented that [Columbia was] seeking and expecting a favorable judgment," and "[T]he case was far from easy to resolve. . . . I find that there was probable cause for bringing the action . . . ."³⁷ The court denied PRE's request for further discovery on the studios' intent.³⁸

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The Court of Appeals affirmed, setting forth a two-part test for sham litigation that separated the objective and subjective elements.³⁹ The court required antitrust plaintiffs to show "(1) that the suit is baseless—a legal question [citation omitted]; and (2) that the suit was brought as part of an anticompetitive plan external to the underlying litigation—a question of fact."⁴⁰ The court agreed that PRE could not show that the movie studios' copyright suit was objectively baseless (the first prong), and so concluded that the district court was correct in denying further discovery on the studios' intent (the second prong).⁴¹ In an assertion the Supreme Court subsequently adopted, the court said: "[A] suit brought with probable cause does not fall within the sham exception to the Noerr-Pennington doctrine."⁴²

The Supreme Court affirmed.⁴³ In an opinion by Justice Thomas, the Court first reiterated that a lawsuit is subject to Noerr immunity for petitioning activity, citing California Motor Transport.⁴⁴ The Court then surveyed its precedents and found that a plaintiffs subjective intent had never been the sole criterion for determining whether litigation amounted to a sham.⁴⁵ To the contrary, the Court said, "the sham exception contains an indispensable objective component."⁴⁶ The Court then set forth its own two-part test for determining when a lawsuit would be deemed a sham and thus exposed to antitrust scrutiny:

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First, the lawsuit must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits. . . . 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' (emphasis added), through the 'use [of] the governmental process—as opposed to the outcome of that process—as an anticompetitive weapon' (emphasis in original).⁴⁷

The Court, drawing on the tort of wrongful civil proceedings, defined objectively baseless as lacking in probable cause to sue,⁴⁸ and emphasized that even if a plaintiff loses a lawsuit (as the movie studios did), the plaintiff should be found to have had probable cause if its belief in the chance of success was objectively reasonable.⁴⁹

To support this test for sham litigation, the Supreme Court relied on "fidelity to precedent."⁵⁰ The Court omitted discussion of the Petition Clause itself (perhaps because previous Noerr opinions had done the same).⁵¹ The Court...