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The existence of probable cause to institute legal proceedings precludes a finding that an antitrust defendant has engaged in sham litigation. The notion of probable cause, as understood and applied in the common-law tort of wrongful civil proceedings, requires the plaintiff to prove that the defendant lacked probable cause to institute an unsuccessful civil lawsuit and that the defendant pressed the action for an improper, malicious purpose. Probable cause to institute civil proceedings requires no more than a reasonable belief that there is a chance that a claim may be held valid upon adjudication. Because the absence of probable cause is an essential element of the tort, the existence of probable cause is an absolute defense.
Petitioner resort hotel operators (collectively, PRE) rented videodiscs to guests for use with videodisc players located in each guest's room and sought to develop a market for the sale of such players to other hotels. Respondent major motion picture studios (collectively, Columbia), which held copyrights to the motion pictures recorded on PRE's videodiscs and licensed the transmission of those motion pictures to hotel rooms, sued PRE for alleged copyright infringement. PRE counterclaimed, alleging that Columbia's copyright action was a mere sham that cloaked underlying acts of monopolization and conspiracy to restrain trade in violation of §§ 1 and 2 of the Sherman Act. The District Court granted summary judgment to PRE on the copyright claim, and the Court of Appeals affirmed. On remand, the District Court granted Columbia's motion for summary judgment on PRE's antitrust claims. Because Columbia had probable cause to bring the infringement action, the court reasoned, the action was no sham and was entitled to Noerr immunity. The District Court also denied PRE's request for further discovery on Columbia's intent in bringing its action. The Court of Appeals affirmed. Noting that PRE's sole argument was that the lawsuit was a sham because Columbia did not honestly believe its infringement claim was meritorious, the court found that the existence of probable cause precluded the application of the sham exception as a matter of law and rendered irrelevant any evidence of Columbia's subjective intent in bringing suit. PRE sought review of the decision.
Did the existence of probable cause preclude the application of the sham exception as a matter of law?
On certiorari, the United States Supreme Court affirmed. The Court held that regardless of the subjective intent of a litigant, an objectively reasonable effort to litigate cannot be a "sham" for purposes of the Noerr-Pennington doctrine. In order for litigation to be a "sham," the lawsuit must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits. Only if challenged litigation was objectively meritless may a court examine the litigant's subjective motivation to determine whether the lawsuit concealed an attempt to interfere directly with the business relationships of a competitor. The existence of probable cause to institute legal proceedings--as understood and applied in the common-law tort of wrongful civil proceedings--precluded a finding that an antitrust defendant has engaged in sham litigation. In the case at hand, even though the studios' copyright action was unsuccessful, the studios had had probable cause to bring such an action because the law was then unclear as to whether the operators' videodisc rental activities intruded on the studios' copyrights.