American Chemical Society v. Leadscope, Inc.

[Cite as Am. Chem. Soc. v. Leadscope, Inc., 133 Ohio St. 3d 366, 2012-Ohio-4193.]
AMERICAN CHEMICAL SOCIETY, APPELLANT, v. LEADSCOPE, INC., ET AL.,
APPELLEES.
[Cite as Am. Chem. Soc. v. Leadscope, Inc.,
133 Ohio St. 3d 366, 2012-Ohio-4193.]
Unfair competition—An unfair-competition claim based on legal action must
show both that the litigation was objectively baseless and that it was
intended to injure the plaintiff’s ability to be competitive, but the verdict
for Leadscope on this claim stands—Defamation—As a matter of law,
American Chemical Society did not defame Leadscope and its
employees—Judgment upholding defamation verdict reversed.
(No. 2010-1335—Submitted September 7, 2011—Decided
September 18, 2012.)
APPEAL from the Court of Appeals for Franklin County,
No. 08AP-1026, 2010-Ohio-2725.
__________________
SYLLABUS OF THE COURT
1. To successfully establish an unfair competition claim based upon legal action,
a party must show that the legal action is objectively baseless and that the
opposing party had the subjective intent to injure the party’s ability to be
competitive.
2. In determining whether a statement is defamatory as a matter of law, a court
must review the totality of the circumstances and read the statement in the
context of the entire publication to determine whether a reasonable reader
would interpret it as defamatory.
3. A client is vicariously liable for its attorney’s defamatory statements only if
the client authorized or ratified the statements.
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SUPREME COURT OF OHIO
O’CONNOR, C.J.
RELEVANT BACKGROUND
Facts
{¶ 1} Appellant, American Chemical Society (“ACS”), is a nonprofit
corporation chartered by Congress that promotes the advancement of professional
chemists and the chemical sciences through publications, meetings, education,
and other activities throughout the world. 36 U.S.C. 20502.
{¶ 2} ACS’s largest division, Chemical Abstracts Service (“Chemical
Abstracts” or “CAS”), is in Columbus, Ohio. Chemical Abstracts produces
comprehensive databases of chemical information that include more than 20
million abstracts of chemistry-related literature and patents. The databases of
chemical compounds and chemical reactions are accessed by scientists and
researchers. Robert Massie is president of Chemical Abstracts; he reports to the
executive director of ACS.
{¶ 3} Appellees Paul E. Blower Jr., Ph.D., Glenn J. Myatt, Ph.D., and
Wayne P. Johnson were employed by Chemical Abstracts. During their
employment, Blower and Myatt worked to develop a software tool named
CAPathFinder (“PathFinder”) that was intended to improve the ability of
researchers to access and organize the voluminous information available in ACS’s
databases.
{¶ 4} Chemical Abstracts suspended the PathFinder project in 1997 to the
disappointment of Blower and Myatt, who believed the software product had
potential. Blower, Myatt, and Johnson soon resigned from Chemical Abstracts to
start their own business, Leadscope, Inc., to develop a software product to aid in
exploring and displaying chemical compounds. Massie personally expressed
concern to his colleagues that Blower, Myatt, and Johnson may have appropriated
a software code or other intellectual property developed while working on
comparable projects at ACS.
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{¶ 5} ACS learned in January 2001 that Leadscope had applied for a
patent. When ACS discovered appellees’ patent-application materials, ACS
formed a working group to analyze them, referred the matter to the legal
department, and retained outside counsel. Leadscope received a United States
patent for its software in November 2001.
{¶ 6} In early 2002, the ACS Governing Board for Publishing and the
ACS board of directors approved legal action against Leadscope if ACS and
Leadscope could not reach an amicable resolution. On April 11, 2002, Michael
Dennis, CAS’s legal-administration manager, called Leadscope’s chief financial
officer, Michael Conley, to set up a meeting on April 15. At the meeting, Dennis
presented Conley with a draft complaint alleging misappropriation of ACS’s
intellectual property and a letter stating that the complaint would be filed if the
parties could not resolve the matter immediately. At this point, Leadscope was
operating on venture capital and was attempting to secure new funding to meet
payroll by the end of the month.
{¶ 7} The parties then engaged in discussions over the next two weeks,
with ACS demanding $1 million and ownership of the Leadscope patent. After
the parties failed to reach a resolution, ACS filed a federal lawsuit against
Leadscope, Blower, Myatt, and Johnson (collectively, “Leadscope”) on May 1,
2002. On the same date, Dennis and another manager circulated an internal
memorandum to “All Staff” at ACS about the lawsuit. The memorandum stated:
Re: Communication re: Legal Matter
The nonprofit American Chemical Society has filed a legal
complaint against Leadscope, Inc., and its founders, who sought and
received a patent for technology indistinguishable from a project on
which they worked while employees of the Society’s Chemical
Abstracts Service in the mid-1990s.
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The Society is a leader in publishing scientific journals and
databases that are indispensable to chemists around the globe, and is
acting to protect its intellectual property and proprietary
information.
Staff members are not authorized to comment on this matter.
It is important that you refrain from communicating and/or
commenting about this subject to any individual while the legal
process is being pursued.
{¶ 8} Ten days later, a statement was published in Columbus’s Business
First newspaper. The article quoted ACS’s outside counsel as follows: “Our
motivation in filing suit is to acquire back the protected information that they took
from us.” The article described both the allegations in the complaint and
Leadscope’s response, including a statement from Myatt that the lawsuit “has no
merit” and a quote from Leadscope’s counsel that “[t]he timing of this lawsuit
[days before Leadscope was to close a venture-capital deal] speaks volumes as to
its invalidity.”
Procedural History
{¶ 9} ACS filed a complaint in the United States District Court for the
Southern District of Ohio on May 1, 2002. Leadscope moved to dismiss the
federal complaint for lack of diversity jurisdiction. ACS then voluntarily
dismissed its lawsuit and refiled it in the Franklin County Court of Common Pleas
in July 2002.
{¶ 10} The complaint alleged claims for breach of employment
agreements, misappropriation of trade secrets, unfair competition, breach of
fiduciary duty and the duty of loyalty, and conversion, and for violation of ACS’s
implied license under shop right. Leadscope responded by denying all claims and
filing counterclaims alleging defamation, tortious interference with business
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relations, unfair competition, violation of the Ohio Deceptive Practices Act,
intimidation and extortion, and violation of the Ohio Pattern of Corrupt Activities
statute.
{¶ 11} Jury trial began on February 4, 2008, and lasted eight weeks. After
the evidence had been presented to the jury, both sides moved for a directed
verdict. ACS specifically moved for a directed verdict on Leadscope’s unfair
competition claim, arguing that Leadscope “must prove by a preponderance of the
evidence that the ACS litigation was not founded upon good faith.” ACS then
defined “good faith” to mean that “ACS has no evidentiary support for its claims,
one; two, [ACS] know[s it has] no evidentiary support for [its] claims.” The trial
court denied ACS’s motion as well as Leadscope’s motion for a directed verdict.
{¶ 12} The parties then met with the judge regarding jury instructions.
During these conferences, ACS objected to submitting to the jury certain
instructions on many of Leadscope’s counterclaims, including the unfair
competition instruction. ACS asserted that it had an absolute privilege to make its
accusations against Leadscope unless those claims were objectively baseless, and
that the accusations could not have been objectively baseless because the trial
court had allowed the jury to decide their validity. ACS also addressed the legal
viability of Leadscope’s defamation counterclaim, asserting that ACS had a
qualified privilege to make its statements to its employees and the media because
the comments were related to litigation. The trial court made some changes based
on those objections.
{¶ 13} ACS also filed written objections to the jury instructions and
submitted the following proposed jury instructions on Leadscope’s unfair
competition allegation:
Unfair competition. Count Three of defendants’
counterclaim seeks damages from ACS for unfair competition by
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way of malicious litigation. You cannot find that ACS engaged in
unfair competition by malicious litigation unless LeadScope
proves each of the following basic requirements of that tort by a
preponderance of the evidence:
(1) That LeadScope was a competitor of ACS and that
LeadScope and ACS were producing and selling the same
commodities; and
(2) That ACS filed its lawsuit in bad faith and without
probable cause, meaning that ACS’s lawsuit had no basis and ACS
knew that the lawsuit had no basis; and
(3) That ACS filed its lawsuit maliciously for the purpose
of harassing and injuring LeadScope; and
(4) That LeadScope was injured as a proximate result of
ACS’s lawsuit.
{¶ 14} The trial court overruled ACS’s objections and instructed the jury
in accordance with the March 21, 2008 jury instructions as follows:
Malicious Litigation
In Ohio, unfair competition may consist of malicious acts by
way of litigation in court that is not founded in good faith, but is for
the purpose of harassing and injuring a rival producing and selling
the same commodities. It is the law that the pursuit of one
competitor by another, either in court or out of court, for the
purpose of injuring his business, is prohibited.
If you find by the greater weight of the evidence that Plaintiff has
committed malicious acts by way of litigation in the courts, or if
you find litigation was not founded upon good faith, but was
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instituted with the intent and purpose of harassing and injuring a
rival engaged in the same business you should find for the
Defendants on their counterclaim of unfair competition in an
amount that would fairly compensate Defendants for the damage
suffered by reason thereof.
{¶ 15} The jury returned verdicts against ACS on its claims for breach of
contract and misappropriation of trade secrets. ACS prevailed on two of
Leadscope’s counterclaims, but the jury returned verdicts in favor of Leadscope
on its counterclaims for defamation, tortious interference, and unfair competition.
Leadscope was awarded a total of $26.5 million in compensatory and punitive
damages, plus attorney fees. The trial court overruled ACS’s postverdict motions
for judgment notwithstanding the verdict, new trial, and remittitur.
{¶ 16} ACS appealed to the Tenth District Court of Appeals, setting forth
six assignments of error. Leadscope filed a conditional cross-appeal. The court of
appeals affirmed the judgment of the trial court “in all respects” and therefore
held that Leadscope’s assignment of error was moot. Am. Chem. Soc. v.
Leadscope, 10th Dist. No. 08AP-1026, 2010-Ohio-2725, ¶ 101-102. Specifically,
the Tenth District held that “the trial court did not err in denying ACS’s motion
for judgment notwithstanding the verdict on the unfair competition claim.” Id. at
¶ 45. The appellate court held that in Ohio, “malicious litigation [is] a basis for an
unfair competition claim” and that the bad faith standard, not an “objectively
baseless” standard, “is better suited to the nature of” such a claim. Id. at ¶ 29, 31.
{¶ 17} The Tenth District also held that “[t]he trial court did not err in
overruling ACS’s motion for judgment notwithstanding the verdict on
Leadscope’s counterclaim for defamation or in refusing to reduce the amount of
damages pursuant to ACS’s motion for remittitur.” Id. at ¶ 64. The appellate
court held that the trial court correctly concluded that ACS’s statements were not
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absolutely privileged and that the statements “exceed[ed] a mere statement that
the parties disputed ownership of the intellectual property incorporated in
Leadscope’s products.” Id. at ¶ 56-57. The appellate court also held that there
was “sufficient evidence upon which the jury could find by clear and convincing
evidence that ACS had published the statements in the memorandum and the
Business First article with actual malice”—that is, “ ‘with knowledge that the
statements are false or acting with reckless disregard as to their truth or falsity.’ ”
Id. at ¶ 59-61, quoting Jacobs v. Frank, 60 Ohio St. 3d 111, 116, 573 N.E.2d 609
(1991). The Tenth District also held as an initial matter that “ACS never objected
to the trial court’s instruction on general damages and waived any objections to
the jury’s considering of this issue.”1 Id. at ¶ 64. Further, the appellate court held
that “the damages the jury awarded for both special and general damages were
properly supported in the noted evidence.” Id.
{¶ 18} We accepted the cause as a discretionary appeal. Am. Chem. Soc.
v. Leadscope, Inc., 126 Ohio St. 3d 1615, 2010-Ohio-5101, 935 N.E.2d 854.
There are four propositions of law before us:
(1) A party has a constitutional right to petition the courts
for a redress of grievances and cannot be found liable for
“malicious litigation” or “wrongful” interference unless a lawsuit is
objectively baseless.
(2) As a matter of Ohio common law, a claim of malicious
litigation requires both the lack of an objective basis and subjective
“bad faith” or malice.
1. This determination is contrary to the evidence of ACS’s objections to proposed jury
instructions, which specifically state, “You may award general damages for these statements
* * *.” ACS’s objections and proposed instructions were filed with the trial court prior to the
issuance of the jury instructions.
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(3) A party may not be found liable for defamation, or to
have acted with actual malice, where it makes limited statements
that accurately describe a public lawsuit and that have an objective
basis in fact.
(4) Damages for defamation must be based upon harm
caused by the defamatory statements, as distinct from harm caused
by a public lawsuit or other proceeding.
(Emphasis sic.)
{¶ 19} For the reasons that follow, we uphold the appellate court’s
decision finding that the trial court did not err in denying ACS’s motion for
judgment notwithstanding the verdict on the unfair competition claim. But we
hold that when a party alleges a claim for unfair competition, the party must show
that the legal action is objectively baseless and that the opposing party had the
subjective intent to injure the party’s ability to be competitive.
{¶ 20} The jury instructions here did not meet that test, but instead
focused solely on whether ACS brought the lawsuit in good faith—that is to say,
the instructions focused on ACS’s action to harass and injure Leadscope and not
on the objective legitimacy of ACS’s claims. However, upon a thorough review
of the evidence presented by Leadscope and the evidence presented by ACS, we
find that even if the jury had been instructed on the proper standard of law, the
jury could not reasonably have made any other determination. We therefore
affirm the judgment of the court of appeals regarding Leadscope’s unfair
competition claim.
{¶ 21} We reverse the appellate court’s decision finding that the trial court
did not err in overruling ACS’s motion for judgment notwithstanding the verdict
on Leadscope’s counterclaim for defamation. We hold that when reviewed under
the totality of the circumstances and in the context of the entire publications,
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ACS’s statements in the internal memorandum and its attorney’s statements in
Business First are not defamatory as a matter of law. We further hold that a client
is vicariously liable for its attorney’s defamatory statements only if the client
authorized or ratified the statements.
ANALYSIS
I. LEADSCOPE’S UNFAIR COMPETITION CLAIM
A. The “objectively baseless” element is a necessary element to prove an
unfair competition claim by way of malicious litigation
{¶ 22} One of the most fundamental and protected rights of our judicial
system is the ability of citizens to access the courts. This right is preserved in
both the First Amendment to the United States Constitution and Article I, Section
16 to the Ohio Constitution. The First Amendment provides that “Congress shall
make no law * * * abridging * * * the right of the people * * * to petition the
Government for a redress of grievances.” Article I, Section 16 of the Ohio
Constitution reads: “All courts shall be open, and every person, for an injury
done him in his land, goods, person, or reputation, shall have remedy by due
course of law, and shall have justice administered without denial or delay.”
{¶ 23} Although the courthouse doors are open to all litigants, both the
United States Supreme Court and this court have set limitations on the right to
redress claims that are brought as a sham, to vex and annoy, or in an attempt to
interfere directly with a competitor’s business relationships. In Professional Real
Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49, 56, 113
S. Ct. 1920, 123 L. Ed. 2d 611 (1993), the Supreme Court recognized this limitation
and held that the First Amendment right to access the courthouse does not extend
to sham litigation. We too have recognized the limitation to the right to seek
redress by holding: “Despite the paramount importance placed on the ability to
access the courts for redress of injuries, the right is not absolute.” Greer-Burger
v. Temesi, 116 Ohio St. 3d 324, 2007-Ohio-6442, 879 N.E.2d 174, ¶ 11.
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{¶ 24} Notwithstanding the limitations on claims brought as a sham, there
was no clarity regarding what constituted “sham litigation” until Professional
Real Estate Investors. In that case, Columbia Pictures sued Professional Real
Estate Investors, Inc., “a resort hotel[,] * * * for alleged copyright infringement
through the rental of videodiscs for viewing in hotel rooms.” Professional Real
Estate Investors at 51-52. Professional Real Estate Investors “counterclaimed,
charging Columbia [Pictures] with violations of * * * the Sherman Act * * * and
various state-law infractions.” Id. at 52. Specifically, Professional Real Estate
Investors “alleged that Columbia’s copyright action was a mere sham that cloaked
underlying acts of monopolization and conspiracy to restrain trade.” Id.
{¶ 25} For the first time, the Supreme Court delineated 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 [E. RR. Presidents Conference v.] Noerr [Motor Freight,
Inc., 365 U.S. 127, 81 S. Ct. 523, 5 L. Ed. 2d 464 (1961) (“Noerr-
Pennington Doctrine”)] and an antitrust claim premised on the
sham exception must fail. 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, 365 U.S. at 144[, 81 S. Ct. at 533, 5
L. Ed. 2d 464] (emphasis added), through the “use [of] the
governmental process—as opposed to the outcome of that
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process—as an anticompetitive weapon,” [Columbia v.] Omni
[Outdoor Advertising, Inc.], 499 U.S. [365], 380, 111 S.Ct. [1344,
113 L. Ed. 2d 382 (1991)] (emphasis in original).”
(Footnote omitted.) Id. at 60-61.
{¶ 26} In crafting its definition, the Supreme Court specifically rejected “a
purely subjective definition of ‘sham.’ ” Professional Real Estate Investors, 508
U.S. at 60, 113 S. Ct. 1920, 123 L. Ed. 2d 611. “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.’ ” Id. at 59. Indeed, the court held that it has “repeatedly
reaffirmed that evidence of anticompetitive intent or purpose alone cannot
transform otherwise legitimate activity into a sham.” Id., citing Fed. Trade
Comm. v. Superior Court Trial Lawyers Assn., 493 U.S. 411, 424, 110 S. Ct. 768,
107 L. Ed. 2d 851 (1990); Natl. Assn. for the Advancement of Colored People v.
Claiborne Hardware Co., 458 U.S. 886, 913-914, 102 S. Ct. 3409, 73 L. Ed. 2d
1215 (1982). The court also 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.’ ” Id., quoting Bill Johnson’s
Restaurants, Inc. v. Natl. Labor Relations Bd., 461 U.S. 731, 743-744, 103 S. Ct.
2161, 76 L. Ed. 2d 277 (1983).
{¶ 27} It is clear that sham litigation “contains an indispensable objective
component” and, therefore, does not “turn[] on subjective intent alone.” Id. at 58,
59; see also Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 500,
108 S. Ct. 1931, 100 L. Ed. 2d 497 (1988), fn. 4 (private unethical action that is not
genuinely aimed at procuring favorable government action is a sham as opposed
to a valid effort to influence government action); Otter Tail Power Co. v. United
States, 410 U.S. 366, 380, 93 S. Ct. 1022, 35 L. Ed. 2d 359 (1973) (describing a
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sham as “evidenced by repetitive lawsuits carrying the hallmark of insubstantial
claims”). Thus, when courts are analyzing a claim for sham litigation, they must
not focus solely on a party’s subjective intent, but must also determine whether
the party’s lawsuit is objectively baseless.
{¶ 28} In Greer-Burger, 116 Ohio St. 3d 324, 2007-Ohio-6442, 879
N.E.2d 174, we followed and quoted the United States Supreme Court’s definition
of “sham litigation” as set forth in Professional Real Estate Investors. Id. at ¶ 11.
In Greer-Burger, an employee had filed a sexual-harassment suit against her
employer. Id. at ¶ 2. After a trial, the jury found in favor of the employer. Id. In
turn, the employer filed suit against the employee and alleged, among other
things, malicious prosecution. Id. The employer argued that he had incurred
significant attorney fees and costs by defending against the employee’s lawsuit.
Id.
{¶ 29} In response to the employer’s lawsuit, the employee “filed a sworn-
charge affidavit with the Ohio Civil Rights Commission (“OCRC”)” and argued
that the employer’s “lawsuit was a prohibited retaliatory violation.” Id. at ¶ 3.
OCRC issued an order prohibiting the employer from proceeding with his lawsuit.
Id. at ¶ 6. The employer appealed to the trial court, which affirmed the OCRC’s
order. Id. at ¶ 7. The Eighth District affirmed as well. Id. at ¶ 8.
{¶ 30} We reversed and held, “[E]ven assuming arguendo that [the
employee] has established a prima facie case of retaliation, [the employer] must
be afforded an opportunity to show that there is an objective basis for his
lawsuit.” (Emphasis added.) Id. at ¶ 15. We further held:
[A]n employer [should have] the opportunity to demonstrate that
the suit is not objectively baseless. In determining whether the
employer’s action has an objective basis, the OCRC
administrative-law judge should review the employer’s lawsuit
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pursuant to the standard for rendering summary judgment. Thus,
an employer needs to “show[] his lawsuit raises genuine issues of
material fact.” [Bill Johnson’s, 461 U.S.] at 746, 103 S. Ct. 2161,
76 L. Ed. 2d 277. If the employer satisfies this standard, the suit
does not fall under the definition of sham litigation. The suit,
therefore, shall proceed in court while the proceedings before the
OCRC shall be stayed.
Id. at ¶ 16.
{¶ 31} Based upon our own precedent and that of the Supreme Court,
courts should not focus solely on a party’s subjective intent, i.e., good or bad
faith, when analyzing an unfair competition claim by way of malicious litigation,
as the court of appeals in this case held.2
{¶ 32} In this case, the Tenth District Court of Appeals cited Henry
Gehring Co. v. McCue, 23 Ohio App. 281, 154 N.E. 171 (8th Dist.1926), as “the
seminal Ohio case adopting malicious litigation as a basis for the tort of unfair
competition.” Am. Chem. Soc., 2010-Ohio-2725, ¶ 30. This was true, however,
until our decision in Greer-Burger in December 2007, a mere two months before
the trial commenced in this case.
{¶ 33} In Henry Gehring, the plaintiff alleged that the defendant’s conduct
was “of such persistent and continuous nature as has resulted in damage to the
[plaintiff] in the production and sale of its wares at common law.” Henry
2. We recognize that the “sham litigation” definition set forth in Professional Real Estate
Investors was created within the context of federal antitrust law. However, we find its rationale to
be identical to the issue in the present case, i.e., maintaining access to the courthouse. Moreover,
applying the Professional Real Estate Investors test to lawsuits outside the context of federal
antitrust law is not a new concept for this court. See Greer-Burger v. Temesi, 116 Ohio St. 3d 324,
2007-Ohio-6442, 879 N.E.2d 174. In Greer-Burger, an employer retaliation case, we first adopted
the test in Professional Real Estate Investors. Id. at ¶ 11. Therefore, the analysis in Professional
Real Estate Investors is not limited to the confines of federal antitrust law, but is applicable to
cases involving unfair competition claims based upon malicious litigation.
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Gehring at 283. The defendant argued that the allegations stated in the petition
did not constitute a cause of action in state court. Id. at 282.
{¶ 34} The Eighth District held:
There is well-established authority for the holding that the
pursuit of one competitor by another, either in court or out of court,
for the purpose of injuring him in his business, may result in
recovery under sufficient proof. There are numerous cases of
successful recoveries because of malicious acts by way of
litigation in the courts, where it appears that the litigation was not
founded upon good faith, but was instituted with the intent and
purpose of harassing and injuring a rival producing and selling the
same commodity.
Id. at 283-284.
{¶ 35} Using Henry Gehring as a guidepost, the Tenth District held that
“the bad faith standard is better suited to the nature of the malicious litigation
claim than is the ‘objectively baseless’ standard.” Am. Chem. Soc., 2010-Ohio-
2725, ¶ 31. Consequently, the Tenth District held that “the trial court properly
instructed the jury that litigation not founded in good faith, but brought for the
purpose of harassing and injuring a rival who was producing and selling the same
commodities, could support Leadscope’s unfair competition claim.” (Emphasis
added.) Id. Thus, the appellate court held that “the trial court did not err in
denying ACS’s motion for judgment notwithstanding the verdict on the unfair
competition claim * * *.” Id. at ¶ 45.
{¶ 36} We disagree with the Tenth District’s conclusion that the “bad
faith” standard is the appropriate standard for an unfair competition claim by way
of malicious litigation. In being presented with this standard, the jury was
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improperly instructed to focus solely on ACS’s subjective intent. This flawed
instruction did not direct the jury to consider whether the lawsuit was objectively
baseless, contrary to the case law on this issue under Greer-Burger and
Professional Real Estate Investors.
{¶ 37} We hold that to successfully establish an unfair competition claim
based upon legal action, a party must show that the legal action is objectively
baseless and that the opposing party had the subjective intent to injure the party’s
ability to be competitive. Here, the jury instructions were inadequate because they
did not include the “objectively baseless” element necessary to meet the two-part
test for an unfair competition claim.
{¶ 38} Even though we hold that the trial court failed to properly instruct
the jury on Leadscope’s unfair competition claim, we find it necessary to address
Leadscope’s assertion that ACS waived its claim of Noerr-Pennington immunity
because immunity is an affirmative defense that must be pleaded in an answer or
it is waived under Civ.R. 8(C) (affirmative defenses).3 ACS did not assert Noerr-
Pennington immunity by name. Leadscope argues that pursuant to Civ.R. 8(C),
ACS waived Noerr-Pennington immunity because it did not expressly raise it
until ACS filed its motion for judgment notwithstanding the verdict.4 See Civ.R.
3. Noerr-Pennington immunity is a “doctrine [that] originated in the anti-trust context as the
proposition that ‘joint efforts to influence public officials do not violate the antitrust laws even
though intended to eliminate competition. Such conduct is not illegal, either standing alone or as
part of a broader scheme itself violative of the Sherman Act.’ ” WE, Inc. v. Philadelphia, Dept. of
Licenses & Inspections, 174 F.3d 322, 326 (3d Cir.1999), quoting United Mine Workers of Am. v.
Pennington, 381 U.S. 657, 670, 85 S. Ct. 1585, 14 L. Ed. 2d 626 (1965); see also Noerr, 365 U.S.
127, 81 S. Ct. 523, 5 L. Ed. 2d 464. The United States Supreme Court has held, “Those who
petition government for redress are generally immune from antitrust liability.” Professional Real
Estate Investors, 508 U.S. at 56, 113 S. Ct. 1920, 123 L. Ed. 2d 611. This type of immunity from
antitrust liability is otherwise known as Noerr-Pennington immunity.
4. Many courts have held that Noerr-Pennington immunity should be raised as an affirmative
defense. See Bayou Fleet, Inc. v. Alexander, 234 F.3d 852, 860 (5th Cir.2000); Acoustic Sys., Inc.
v. Wenger Corp., 207 F.3d 287 (5th Cir.2000); North Carolina Elec. Membership Corp. v.
Carolina Power & Light Co., 666 F.2d 50, 52 (4th Cir.1981). Even so, as the Fifth Circuit in
Bayou Fleet explained, the general rule of waiver does not apply when the defense is raised later
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8(C) (“a party shall set forth affirmatively * * * any other matter constituting an
avoidance or affirmative defense”).
{¶ 39} ACS counters that it did not waive Noerr-Pennington immunity,
because it argued repeatedly for a directed verdict on the unfair competition and
tortious interference claims. ACS further submits that it also argued that it was
entitled to Noerr-Pennington immunity when ACS filed its objections to the trial
court’s jury instructions on March 24, 2008. ACS argues that it is not required to
specifically use the words “Noerr Pennington” or “First Amendment” and that its
objections to the jury instructions preserved its argument for Noerr-Pennington
immunity on appeal. The second and third paragraphs of its proposed jury
instruction, it claims, invoked the Noerr-Pennington doctrine and the correct
standard of law to provide immunity on Leadscope’s unfair competition claim.
{¶ 40} The parties’ focus on the waiver issue is a red herring in this case.
Here, ACS filed a lawsuit against Leadscope. Leadscope then counterclaimed,
alleging, among other claims, unfair competition. As the counterclaimant,
Leadscope had the burden of proving its claim for unfair competition, regardless
of whether ACS did or did not plead Noerr-Pennington immunity as an
affirmative defense. In Professional Real Estate Investors, the Supreme Court
held:
[E]ven a plaintiff who defeats the defendant’s claim to
Noerr[-Pennington] 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
but does not result in unfair surprise or “if it is raised at a ‘pragmatically sufficient time, and the
plaintiff was not prejudiced in its ability to respond.’ ” Id. at 860, quoting Chambers v. Johnson,
197 F.3d 732, 735 (5th Cir.1999).
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the defendant of immunity; it does not relieve the plaintiff of the
obligation to establish all other elements of his claim.
Professional Real Estate Investors, 508 U.S. at 61, 113 S. Ct. 1920, 123 L. Ed. 2d
611. Therefore, the burden remained on Leadscope to prove its unfair
competition claim. Noerr-Pennington immunity is a shield from liability, and
Leadscope cannot escape its burden of proving its own claim by wielding the
Noerr-Pennington doctrine as a sword.
{¶ 41} Furthermore, independent of the question of ACS’s preservation of
an affirmative defense is the question whether the trial court appropriately
instructed the jury as to the standard for finding unfair competition by way of
malicious litigation. That is the question we were asked to address when we
accepted the cause for discretionary review, and that is the question we have
answered.
B. Although the jury should have been instructed on the
“objectively baseless” standard, there is overwhelming
evidence to support the jury’s verdict against ACS
{¶ 42} Today we hold that the “objectively baseless” standard is the
correct standard for an unfair competition claim based upon malicious litigation,
and therefore, the trial court should have instructed the jury to apply that standard.
Here, the trial court improperly instructed the jury to apply a “bad faith” standard.
In affirming the use of the “bad faith” standard, the appellate court reviewed the
evidence presented to the jury and held, “The jury, as trier of fact, was entitled to
draw permissible inferences from the chronology, course, and scope of litigation
ACS undertook and to conclude ACS’s civil action constituted malicious
litigation.”
{¶ 43} We, too, find it necessary to highlight certain evidence that was
presented by ACS and Leadscope.
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January Term, 2012
1. ACS’s Evidence
{¶ 44} ACS claimed that Leadscope misappropriated PathFinder. The
jury was instructed that to constitute misappropriation, the information at issue
must be a trade secret. The jury was also instructed that a trade secret is
information that “is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.” Although ACS never expressly argued to
the jury what trade secret Leadscope allegedly took, the PathFinder source code
was the only “secret” property. Indeed, the majority of the evidence adduced by
ACS was focused on PathFinder’s source code.
{¶ 45} CAS’s President Massie had testified at deposition that “the source
code is * * * an extraordinarily important and central tangible item in the sense
that it’s reduced to some medium.” He had also testified that he was most
interested in the source code because “[t]hat is, after all, what this entire problem
is about: Who created this product?” Michael Petras, a senior engineer at ACS
and one of the code writers of PathFinder, testified that there was “no doubt” that
the source code for PathFinder was confidential.
{¶ 46} The source code was so important to ACS that it was part of its
negotiations with Leadscope before this litigation. Michael Dennis, CAS’s legal-
department manager, testified:
A. We talked about the PathFinder source code and the
entire PathFinder project, and we had conversations about how we
believed, Pete [Roche] and I, that Leadscope had the enjoyment of
the PathFinder software or source code and that as part of the
settlement or resolution of this, that Leadscope should provide CAS
with any enhancements that they had made to that software.
Q. And when you pointed out that you thought they had the
benefit of the PathFinder source code, what did these people say?
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A. They never corrected us.
Q. Did they ever deny having the PathFinder source code?
A. No. Which left us with the impression that they had
copied some form of the PathFinder software.
{¶ 47} But the jury heard testimony from ACS’s own expert that the
source codes for PathFinder and the Leadscope patent were not the same. Dr.
Sudhakar Yalamanchili testified that “he did not find any” verbatim copying of
any source code from PathFinder that was used in Leadscope. Dr. Martin Rinard,
Leadscope’s expert, confirmed Dr. Yalamanchili’s conclusion that the source
codes were not identical. He “looked at every line of source code and both source
code bases” and concluded that Leadscope’s source code was not copied from the
PathFinder source code.
{¶ 48} The source code was the only part of PathFinder that was
considered highly confidential. The functionality of PathFinder was not
proprietary information. Petras conceded that other than the source code,
documents were not subject to security procedures for the purpose of protecting
confidentiality. In fact, Petras testified that the functionality of PathFinder was
not secret and was described to the public in articles and in scientific
presentations. The functionality of the PathFinder project was disclosed to
customers through sales presentations, without the protection of nondisclosure
agreements. And Lou O’Korn, head of ACS’s research department, testified that
there were other products in the field that had the capabilities of the Leadscope
patent and PathFinder. The functionality of PathFinder was unequivocally not a
secret.
{¶ 49} ACS did not provide sufficient evidence to the jury supporting its
claim for misappropriation or that it had a patent on PathFinder. ACS’s only
secret was the source code, and expert testimony revealed that the source codes
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January Term, 2012
for PathFinder and Leadscope were not the same. The lack of sufficient evidence
of misappropriation is astonishing, especially considering the length of this trial
and the extensive nature of the discovery spanning nearly six years.
{¶ 50} But the lack of evidence is even more problematic for ACS’s
defense of Leadscope’s counterclaim alleging that ACS filed the lawsuit solely to
injure Leadscope’s competitiveness. ACS never specified any information to
support its basis for filing the lawsuit. President Massie testified that he formed a
working group to investigate the patent. However, the jury never heard testimony
about the results of the committee or how it reached its determination that
Leadscope had misappropriated the PathFinder product.
{¶ 51} Instead, there were extensive discussions out of the presence of the
jury between counsel and the judge regarding Leadscope’s motion in limine
seeking to introduce evidence of the conclusions of the working group. ACS
successfully sought its exclusion on the basis that the information was protected
by work-product and attorney-client privilege. Thus, the jury never heard
testimony on the information ACS had when it filed its lawsuit to support its
claims for misappropriation against Leadscope. This is relevant because in
defending the counterclaim involving unfair competition predicated upon legal
action, ACS was required to show that when the lawsuit was filed, it had an
objective basis and was not filed simply to injure Leadscope’s ability to be
competitive.
{¶ 52} The evidence that ACS did present to the jury failed to establish
that it possessed anything more than speculation at the time it filed its lawsuit that
PathFinder had been misappropriated by Leadscope. ACS’s own experts and
internal technical staff would not state that Leadscope had stolen ACS’s trade
secrets. Although the experts and internal technical staff identified similarities in
the patented information, no testimony established that Leadscope took ACS’s
proprietary information. Instead, ACS focused its arguments on the similarities
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between the source code and “operational flows.” ACS relied on those
similarities as proof that Leadscope misappropriated PathFinder.
{¶ 53} Dr. Yalamanchili’s testimony could not provide any insight as to
what information ACS relied upon in filing its claims against Leadscope, given
that he was not retained by ACS until 2007, five years after the lawsuit was filed.
Dr. Yalamanchili testified that the “operational flow” of the two programs was
“identical.” But Dr. Yalamanchili never clearly defined “operational flow” or
why identical “operational flows” supported ACS’s claim of misappropriation.
The jury never heard testimony from Dr. Yalamanchili or any other ACS expert
that the operational flow constituted proprietary information. Dr. Yalamanchili
even admitted he did not review any other software projects beyond PathFinder
and Leadscope’s patent to determine whether other programs had the same
operational flow.
{¶ 54} But Dr. Yalamanchili also testified that the Leadscope patent and
PathFinder were different in several ways. He testified that there was no evidence
that the PathFinder source codes were the same as Leadscope’s. Additionally, the
two programs were written in different programming languages. Dr.
Yalamanchili also testified that the algorithms of PathFinder and Leadscope were
not identical. Thus, ACS’s own expert failed to make a convincing case that
Leadscope misappropriated ACS’s intellectual property.
{¶ 55} Further damaging to its case, ACS’s own information technology
employees, such as Robert Swann, could not equivocally state that Leadscope had
misappropriated PathFinder:
Q. And you were asked your opinion regarding whether
Drs. Blower and Myatt and Mr. Johnson developed Leadscope on
their own or whether it was Chemical Abstracts’ technology?
A. On several occasions.
22
January Term, 2012
Q. And in, in fact—well, what was your response to such
questions?
A. Honestly don’t know. I could not tell you if they did or
did not.
{¶ 56} President Massie also testified that ACS did not bring a lawsuit
before Leadscope filed a patent application because it could not tell what, if any,
information had been misappropriated:
Q. And if I understand correctly, your testimony earlier, it
was, you were not—that [Robert Swann] advised you we couldn’t
tell without seeing code or independent development, essentially; is
that fair to say?
A. I don’t know what you mean by “independent
development.” But I would agree with you that I said to him not
only my concerns, but there were a lot of concerns within CAS, a
lot of management was talking about this product and worrying
about whether anything was taken from us. So I did ask Mr.
Swann, what do you think, what do you people in technology think.
He said, we can’t tell from the outside whether this has our
information in it.
***
Q. In terms of what you were told at that point in time in
April—or in August of—fall of 1999, we can see the screen of the
Leadscope project in a fleeting way, perhaps at a meeting; but we
don’t know if that source code was our source code unless the guys
came over and sat down and said, here’s what we did; or if they
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had given us proof they did their work from scratch and didn’t do
our work, et cetera.
***
A. I believe that’s what I said in an explanation to you of
what do we mean we didn’t know, and I was giving you an example
of the kinds of things that, had we known, we would have a better
handle on whether that was our IP.
Q. And what you wanted to know was the source code or
proof of independent development?
A. Those are—those are very good critical examples of
what we need to know.
THE COURT: Is that what you wanted to know?
A. It’s part of what we wanted to know.
***
Q. Isn’t it fair to say as far as you were concerned the entire
problem was the source code?
A. No, it’s not.
(Emphasis added.)
{¶ 57} ACS presented a theory, but offered no concrete evidence that
Leadscope stole its product. On the testimony and evidence presented, ACS
failed to prove that it had any, let alone sufficient, evidence to support its lawsuit.
The record is replete with ACS’s speculation, surmise, and supposition, but
wholly lacking of probative evidence from which a rational jury could conclude
that misappropriation actually occurred. The jury could reasonably infer, based
on the paucity of evidence presented, that the lawsuit was objectively baseless
when filed.
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January Term, 2012
{¶ 58} Indeed, even during closing arguments, ACS’s counsel repeatedly
argued that ACS had support for its claims, but failed to identify any evidence it
relied on to support its allegation of misappropriation:
We gave you that evidence that supports the ACS claims. We
gave you that evidence in detail. * * * But for defendants to say
there is no evidentiary support and that we filed this counterclaim
with nothing—excuse me, we filed this suit in April of 2002 with
nothing to support it, it defies common sense.
Not so. We conclude that ACS failed to specify any evidence it relied upon in
filing its lawsuit. It is therefore not surprising that ACS failed to convince the
jury that Leadscope had misappropriated the PathFinder project. Leadscope, on
the other hand, presented persuasive evidence that ACS had an intent to harm its
business as its motivation in filing the lawsuit.
2. Leadscope’s Evidence
{¶ 59} Leadscope presented evidence that President Massie kept a
watchful eye on Leadscope’s progress:
Q. Let’s go to 1999. In the year 1999, did you start hearing
something about Leadscope which caused you to start having
concerns?
A. Yes. There were two things—in—in 1999. First, people
were beginning—within CAS were beginning to ask questions
about the product that they were putting out, and some uneasiness
about the product. And the other issue at the time I remember is
they were starting to hire a fair number of our staff, and that began
to raise some questions, too.
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Q. Did you begin to ask questions within your organization
about whether these defendants had taken any information that they
should not have?
A. Yes. When someone would say to me, well, we may
have a problem here, my response was, well, there’s only a problem
if they took information away, and does anybody know—does
anybody have an idea or anybody know if there’s any problem with
the product? Did they taken any of our code? Did they take any
trade secrets?
Q. Okay. In 1999, I’m still in that year, did you raise
questions with your research group on that subject?
A. Yes, I asked—I asked Mr. Swann, who was the—who
was the head of IT at the time. I think the title then was director of
IT, and Lou O’Korn who worked for him, I asked if they thought
there was a problem with this product.
Q. And what response were you getting from those
gentlemen?
***
A. They almost always said the same thing, which is, they
couldn’t tell from the outside if there was a problem with the
product.
Q. What do you mean by that?
A. They couldn’t tell by just looking—looking at the
materials, the—what was public. They couldn’t tell what was
underneath the product so they could see if anything of ours was
taken. I think they uniformly said to me, we just don’t know.
(Emphasis added.)
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January Term, 2012
{¶ 60} Lou O’Korn eventually met with the president of Leadscope, and
O’Korn “was given formal assurances” that Leadscope did not take anything from
ACS. But despite these assurances, President Massie’s monitoring of Leadscope
continued into the next year. In fact, in 2000 President Massie had a telephone
conversation with Allen Richon, president of Leadscope, during which he relayed
his concerns:
A. * * * I said to him, Allen, we have two concerns here.
I said, one is this continued unease at CAS about this
product you guys have and just a feeling this—that maybe
something was taken from us.
And I said our second concern is the hiring of CAS staff,
which we really don’t want to get out of control. * * * He said, as
to the product, I can absolutely tell you that this was developed by
our people, and there’s no intellectual property problem here at all.
I said, well, okay if that’s your assurance, I said, well, you know,
we can get on with life and maybe work together. I said, but you
need to know that’s a concern of ours.
(Emphasis added.)
{¶ 61} Yet President Massie did not “get on with life.” He still monitored
Leadscope closely. He visited its website and read its articles, although his team
continued to tell him that it did not know whether Leadscope took anything:
A. * * * This would be an ongoing thing where maybe an
article would cross my desk or someone would come into my office
and say, this—Leadscope is kind of a worry. And I—I would then
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ask Bob Swann, you know what do you think we have here and he
would say, we don’t know.
{¶ 62} When President Massie discovered that Leadscope had filed a
patent application in 2001, he “formed a separate group within Chemical
Abstracts to investigate Leadscope, the company, the patent, and also the
Leadscope product.” And, soon after the patent application, President Massie’s
concerns seemed to transmogrify into ill will.
{¶ 63} In February 2002, in an attempt to abort a visit by Governor Bob
Taft to Leadscope’s offices, President Massie sent an e-mail to Governor Taft’s
office. Governor Taft was a “personal friend” of President Massie. In his e-mail,
he wrote, according to his testimony:
Q. “* * * CAS is about to challenge Leadscope’s patent on
the ground * * * that it is based in significant part on ‘prior art’
technology, much of it developed at CAS or in existence already in
CAS products or elsewhere.
“* * *
“There are questions about what the CAS researchers did or
did not remove from CAS in terms of code * * * work product,
plans, et cetera. While I am not at this time suggesting that
anything illegal was done, CAS is reserving its rights to challenge
any aspect of Leadscope’s product suite or business activities on
these grounds.”
{¶ 64} The jury also heard testimony from ACS’s former information
technology director, Robert Swann, about President Massie’s hostility toward
Leadscope. Swann testified that President Massie seemed to take the Leadscope
28
January Term, 2012
situation “very personally” and that he “raised his voice in connection with
Leadscope.” President Massie even told Swann that Blower was risking his
retirement by working with Leadscope. He also made comments about
Leadscope’s financial situation, stating that Leadscope was going through its
money.
{¶ 65} The jury heard testimony that a committee was formed by
President Massie to investigate the patent application:
A. I can absolutely guarantee you that to bring legal action or do
anything, we had to have something really substantive, and that
didn’t happen till this patent came out. And when this patent came
out, we were all in shock. I turned the patent over to the general
counsel, and then the investigation started, and that’s what
happened.
{¶ 66} Massie never testified about what happened in the committee’s
investigation. Swann testified that the allegations that Leadscope took ACS’s
trade secrets were the conjectures of President Massie. Therefore, beyond mere
assertions that the Leadscope patent “looked an awful lot like PathFinder” and
that it “was [ACS’s] patent,” President Massie offered no explanation as to how
ACS reached the conclusion that Leadscope misappropriated PathFinder. ACS
waited to take any legal action until it could review the patent. But having
reviewed it, Massie offered the jury nothing more than his own conclusion that
Leadscope misappropriated PathFinder from ACS.
{¶ 67} Once the committee results were turned over to President Massie
and the two ACS boards approved pursuing legal remedies against Leadscope,
ACS engaged in heavy-handed negotiation tactics. There was no evidence
presented to the jury that the two ACS boards reviewed the committee results, and
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the committee results were never entered into evidence for the jury’s
consideration. On April 11, 2002, CAS counsel Michael Dennis called Michael
Conley, Leadscope’s chief financial officer, demanding a meeting. If Leadscope
did not meet, it would face a complaint with “civil and criminal charges.” On
April 15, 2002, Conley met with ACS representatives, during which they
presented him with a draft complaint, including a letter with their demands. The
demands included ownership of Leadscope’s patent, a $1 million payment, and
Leadscope’s stopping all sales of products incorporating the disputed patent, in
exchange for avoiding litigation.
{¶ 68} Conley responded in an April 16, 2002 letter attempting to avoid
litigation. He informed ACS that it was in the midst of securing financing and
that “even threatening of this litigation was going to disrupt [Leadscope’s]
financing.” Conley testified, “So, again, it was—it was kind of almost a plea
from our part of, why are you doing this, and don’t go forward and do this
because this is going to really, you know, mess up our company.” After
Leadscope did not agree to ACS’s demands, ACS filed its lawsuit.
{¶ 69} Leadscope also presented evidence that ACS intended to harm it
financially by filing a lawsuit. President Massie was aware of Leadscope’s
delicate financial situation. ACS also became aware of potential investments in
Leadscope and derailed those investments.
{¶ 70} For example, Curtis Crocker, a venture capitalist with Battelle
Technology Fund, spoke with Michael Dennis at CAS about making an
investment in Leadscope and the terms under which the Leadscope founders left
Chemical Abstracts. Dennis informed Crocker that ACS had legal issues with
Leadscope. After learning about the legal issues, Crocker admitted to Dennis that
he “was uncomfortable moving forward” with his investment with Leadscope
until the issues were cleared up. Furthermore, Conley testified that he had a
conversation with Dennis that “their even threatening of this litigation was going
30
January Term, 2012
to disrupt [Leadscope’s] financing.” Therefore, ACS was aware that it was
having a direct impact on Leadscope’s financing.
{¶ 71} Leadscope also presented evidence that ACS was attempting to use
the lawsuit as a way to impede Leadscope’s success and to bankrupt the company
and Dr. Blower, Dr. Myatt, and Johnson. For example, after ACS filed suit,
Leadscope struggled initially to establish its insurer’s duty to advance defense
costs. After Leadscope obtained defense via its insurance coverage, ACS
dismissed that part of the complaint upon which coverage was predicated, leaving
Leadscope without insurer-funded attorneys and coverage in the event it was held
liable.
{¶ 72} Having reviewed the foregoing and other evidence, the Tenth
District held, “Much of the evidence supported Leadscope’s claims that ACS’s
unfair competition was rooted in its alleged desire to suppress, by any means
necessary, Leadscope as a new software competitor.” Am. Chem. Soc., 2010-
Ohio-2725, ¶ 32. We agree with the appellate court’s holding inasmuch as
Leadscope, as the counterclaimant alleging unfair competition, had the burden to
present evidence to support that claim. It did just that.
{¶ 73} Having independently scoured the voluminous record for other
evidence that could support a finding favorable to ACS, we could not find the
evidence, in detail or otherwise, upon which ACS relied in bringing its lawsuit.
We find that there is no sufficient foundation from which a jury could conclude
that ACS adequately supported its claims. Therefore, we agree with the appellate
court that the jury’s verdict in favor of Leadscope should be upheld. Although the
jury’s determination was made using the “bad faith” standard, the evidence
presented was so lacking that even if the “objectively baseless” standard had been
applied, the outcome would have been the same.
{¶ 74} We reach our determination with great respect to a jury’s role in
the judicial process, but we also recognize that a court of last resort may decide
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the merits of a case when it adopts a new legal standard. That result is proper
here, given the nature of the claims presented and the fact that a decade has
elapsed since the lawsuit was filed. When an appellate court “adopts a new legal
standard * * * on * * * [some] occasions, it applies the new standard itself and
decides the merits.” Casey v. Planned Parenthood of Southeastern Pennsylvania,
14 F.3d 848, 857 (3d Cir.1994).5 And federal appellate courts have used that
approach in a wide array of cases, including antitrust claims.
{¶ 75} In MCI Communications Corp. v. Am. Tel. & Tel., 708 F.2d 1081
(7th Cir.1983), a federal antitrust case, the Seventh Circuit Court of Appeals held
that the jury instructions did not reflect the proper standard, but because “there is
insufficient evidence to support a finding of unlawful pre-announcement under
the proper legal standard, we need not remand for a new trial on this issue.” Id. at
1129, fn. 69.
{¶ 76} The Ninth Circuit has also followed this approach. In Beck v.
Upland, 527 F.3d 853, 857 (9th Cir.2008), the issue was whether the plaintiff’s
lawsuit alleging retaliatory arrest pursuant to 42 U.S.C. 1983 could go forward to
trial. “After the district court’s decision, the United States Supreme Court” issued
an opinion “clarifying the elements of a constitutional tort under § 1983 for
retaliatory arrest or prosecution.” Id. The federal court of appeals held that when
a new standard of law is decided in a case, “ ‘the better approach’ ” is to remand
so that the district court can “apply the appropriate standards.” Id. at 867, quoting
In re Exxon Valdez, 270 F.3d 1215, 1241 (9th Cir.2001). However, the court held:
[B]ecause it has already been four years since [the] arrest and three
years since this case was filed, considerations of judicial efficiency
5. Although we recognize that we first adopted the standard in Greer-Burger, which was in the
context of employee retaliation, we make clear that consistent with its origins, it applies in full for
claims of unfair competition by way of malicious litigation.
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January Term, 2012
lead us to resolve the matter today. Justice would not be served by
subjecting the parties to further pre-trial disputes over immunity
when the matter can be clearly settled on the present summary
judgment record.
Id. at 867-868.
{¶ 77} The principle of fairness requires us in this rare and limited
instance to reach this holding, and we do so with great caution and reluctance.
Here, a party, Leadscope, was not only successful in its counterclaim for unfair
competition, but was also successful in defending against a claim for
misappropriation. Because an improper standard was given, some justices would
require this successful party to retry this case, but a retrial would be costly to the
parties and judicial resources to only reaffirm what a jury properly concluded
upon our independent review of the record: ACS did not establish
misappropriation, and Leadscope established unfair competition.
II. DEFAMATION CLAIM
A. ACS is not liable for defamation because its
statements were not defamatory as a matter of law
1. The Internal Memorandum
In Ohio, defamation occurs when a publication contains a
false statement “made with some degree of fault, reflecting
injuriously on a person's reputation, or exposing a person to public
hatred, contempt, ridicule, shame or disgrace, or affecting a person
adversely in his or her trade, business or profession.”
Jackson v. Columbus, 117 Ohio St. 3d 328, 2008-Ohio-1041, 883 N.E.2d 1060,
¶ 9 quoting A & B-Abell Elevator Co. v. Columbus/Cent. Ohio Bldg. & Const.
Trades Council, 73 Ohio St. 3d 1, 7, 651 N.E.2d 1283 (1995).
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To establish defamation, the plaintiff must show (1) that a
false statement of fact was made, (2) that the statement was
defamatory, (3) that the statement was published, (4) that the
plaintiff suffered injury as a proximate result of the publication, and
(5) that the defendant acted with the requisite degree of fault in
publishing the statement.
Pollock v. Rashid, 117 Ohio App. 3d 361, 368, 690 N.E.2d 903 (1996).
{¶ 78} “[I]t is for the court to decide as a matter of law whether certain
statements alleged to be defamatory are actionable or not.” Yeager v. Local
Union 20, Teamsters, Chauffeurs, Warehousemen & Helpers of Am., 6 Ohio St. 3d
369, 372, 453 N.E.2d 666 (1983).
{¶ 79} “In determining whether a statement is defamatory as a matter of
law, a court must review * * * the totality of the circumstances” and by “read[ing]
the statement[] * * * in the context of the entire [publication] to determine
whether a [reasonable] reader would interpret [it] as defamatory.” Mann v.
Cincinnati Enquirer, 1st Dist. No. C-09074, 2010-Ohio-3963, ¶ 12, citing Scott v.
News-Herald, 25 Ohio St. 3d 243, 253, 496 N.E.2d 699 (1986), and Mendise v.
Plain Dealer Publishing Co., 69 Ohio App. 3d 721, 726, 591 N.E.2d 789 (1990).
[T]he words of the publication should not be considered in
isolation, but rather within the context of the entire [publication]
and the thoughts that the [publication] through its structural
implications and connotations is calculated to convey to the reader
to whom it is addressed.
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January Term, 2012
Connaughton v. Harte Hanks Communications, Inc., 842 F.2d 825, 840 (6th
Cir.1988), aff’d, 491 U.S. 657, 109 S. Ct. 2678, 105 L. Ed. 2d 562 (1989).
{¶ 80} Reading ACS’s statements made in the internal memorandum in
context, we readily conclude that they are not defamatory as a matter of law. The
internal memorandum was simply a directive to all employees from CAS’s legal
administration manager not to speak about the litigation. It was understandable
and reasonable for the legal administration manager to disseminate an internal
memorandum regarding an important legal matter to employees. In order for the
directive to be effective, the litigation had to be described in sufficient detail.
Considering the memorandum as a whole and considering the fact that the
statements in the memorandum were almost a verbatim recitation of the
allegations in the complaint, we hold that the statements are not defamatory and
are not actionable.
2. The Business First Article
{¶ 81} Business First, a newspaper serving the corporate community,
reported on the filing of the ACS lawsuit and the allegations made by ACS. The
article, entitled “LeadScope, its founders sued by former employer,” contained a
balanced report of both parties’ arguments and defenses. The alleged defamatory
statements made by ACS’s outside counsel in the article pertained to ACS’s intent
in filing the lawsuit: “Our motivation in filing suit is to acquire back the
protected information that they took from us.”
{¶ 82} Business First gave the parties an opportunity to comment on the
case and, in fact, both parties took advantage of that opportunity. The first
sentence of the article states that ACS is “alleging [that Leadscope and its
founders] used proprietary information to form and operate their business.” Thus,
a reasonable reader would understand that ACS’s counsel’s statements were a
quick summary of the case and ACS’s allegations.
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{¶ 83} For its part, Leadscope stated that the lawsuit “has no merit.” The
article also contained extrajudicial statements by Leadscope’s counsel that “[t]he
timing of this lawsuit speaks volumes as to its invalidity” and Leadscope’s
intention to file a counterclaim. Leadscope’s counsel stated that even though
ACS had been aware of the fact that “Leadscope ha[d] been working up its new
products for about four or five years [and] ha[d] acquired about $10 million in
venture capital,” ACS did not “utter[] a peep for four or five years.”
{¶ 84} From the views presented in the article, the average reader would
learn that the suit had been filed and could easily understand the gist of the claims
and defenses from the brief quotes that the parties provided regarding their
opinions about the lawsuit.
{¶ 85} Moreover, the lawsuit was not under seal, and the complaint was
available to the public. The public has a legitimate, constitutionally protected
interest in judicial proceedings, and the article provided information to educate
and inform the public about the case.
{¶ 86} Considering the article as a whole and the fact that the article
contained a true and accurate summary of the legal proceedings at the time, we
hold that the statements in the article are, as a matter of law, not defamatory.
Thus, we must reverse the judgment of the court of appeals to the extent it held
otherwise.
{¶ 87} Even though we hold that the statements published in Business
First are not defamatory as a matter of law, we must also address the significance
of the fact that ACS was held liable for statements made by its outside counsel to
the media. Client liability for an attorney’s statements is an issue of first
impression for this court.
{¶ 88} Although we have not confronted the discrete issue here, courts
outside of Ohio have done so. The better reasoned opinions hold that a client may
be vicariously liable for its attorney’s torts only if the client authorized or ratified
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the conduct. See, e.g., Givens v. Mullikin, 75 S.W.3d 383, 394-396 (Tenn.2002)
(an insurer and an insured may be held vicariously liable for the tortious acts or
omissions of an attorney hired to defend the insured if the attorney’s tortious
actions were directed, commanded, or knowingly authorized by the insurer or by
the insured); Chisler v. Randall, 124 Kan. 278, 259 P. 687, 690 (Kan.1927) (“The
client is not responsible for unauthorized defamatory communications made by
his attorney”); Green Acres Trust v. London, 142 Ariz. 12, 18-19, 688 P.2d 658,
(Ariz.App.1983), vacated in part on other grounds, 141 Ariz. 609, 688 P.2d 617
(1984) (a client was not liable for defamation when there was an absence of any
evidence of either authorization or ratification of the attorneys’ statements);
Arigno v. Murzin, Conn.Super.Ct. No. CV960474102S, 2001 WL 1265404, *9
(Oct. 2, 2001) (a client was vicariously liable for an attorney’s statements that
went beyond reading charges against the opposing party because the client
apparently authorized the statements).
{¶ 89} We agree. Based on the foregoing authority, we hold that a client
is vicariously liable for its attorney’s defamatory statements only if the client
authorized or ratified the statements. To hold otherwise would wreak havoc on
the bench and bar, as well as clients.
{¶ 90} We make clear that Ohio law imposes no blanket prohibition on an
attorney’s communications to the media. Attorneys and their clients retain a
panoply of First Amendment rights and are free to speak to the public about their
claims and defenses provided that they do not exceed the contours of protected
speech and ethical rules that impose reasonable and necessary limitations on
attorneys’ extrajudicial statements. See Prof.Cond.R. 3.6 (“A lawyer who is
participating or has participated in the investigation or litigation of a matter shall
not make an extrajudicial statement that the lawyer knows or reasonably should
know will be disseminated by means of public communication and will have a
substantial likelihood of materially prejudicing an adjudicative proceeding in the
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matter”). Thus, while we do not muzzle an attorney representing a party in a
proceeding, attorneys are not given carte blanche to defame others under the guise
of litigation.
{¶ 91} In this case, the jury was given only an instruction on the law of
defamation. It was not instructed to determine whether ACS was vicariously
liable for its attorney’s statements. And there was no evidence before the jury
that ACS had endorsed or ratified its counsel’s statements. Thus, the verdict
against ACS could not stand even if its attorney’s statements could be held to be
defamatory. We caution trial courts that, in the future, they must instruct the jury
regarding client authorization or ratification in cases in which claims for
defamation are predicated on extrajudicial statements made by the client’s
attorney.
B. Damages
{¶ 92} Because we hold today that ACS’s statements in the internal
memorandum and Business First were not defamatory as a matter of law, we
reverse the judgment of the appellate court that upheld the jury’s verdict and the
jury’s award of damages on the defamation claim.
III. CONCLUSION
{¶ 93} Because we hold that the appropriate standard for an unfair
competition claim predicated upon malicious litigation is the two-part test set
forth by the Supreme Court in Professional Real Estate Investors, we hold that the
trial court and court of appeals applied the wrong standard in deciding whether
ACS brought its claims in good faith. The United States Constitution and the
Ohio Constitution do not necessarily preclude claims grounded simply in bad
faith. What is precluded are lawsuits that are objectively baseless and filed with
the subjective intent to injure the party’s ability to be competitive.
{¶ 94} In this case, the evidence presented by Leadscope overwhelmingly
supported the jury’s verdict on Leadscope’s unfair competition counterclaim.
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Meanwhile, ACS’s misappropriation claim was completely devoid of evidence
that would have supported its claim for misappropriation. Leadscope’s vast
evidence, coupled with ACS’s lack of support for its claim, compels us to hold
that even if the jury had been instructed properly, the result would be the same.
We therefore affirm the portions of the judgment in favor of defendant Leadscope
on the misappropriation claim and in favor of the counterclaimant Leadscope on
its counterclaim.
{¶ 95} Finally, we hold that ACS’s statements in the internal
memorandum and its attorney’s statements in Business First are not defamatory as
a matter of law. We also hold that a client is vicariously liable for its attorney’s
defamatory statements only if the client authorized or ratified the statements.
Therefore, we reverse that part of the judgment of the appellate court that upheld
the jury’s verdict and the jury’s award of damages on defamation.
{¶ 96} The cause is remanded to the trial court with orders to vacate its
judgment for Leadscope on the issue of defamation.
Judgment affirmed in part
and reversed in part,
and cause remanded.
LANZINGER and MCGEE BROWN, JJ., concur.
PFEIFER, J., concurs in part one of the judgment and dissents in all other
respects.
LUNDBERG STRATTON and O’DONNELL, JJ., concur in all syllabus
paragraphs and in part two of the judgment and the portion of the opinion relating
thereto, and dissent as to part one of the judgment.
CUPP, J., concurs in paragraph one of the syllabus and dissents in all other
respects.
__________________
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PFEIFER, J., concurring in part and dissenting in part.
{¶ 97} I concur in the majority’s judgment affirming the appellate court’s
judgment on appellees’ unfair-competition claims. I do not concur in the
majority’s determination that a legal action must be objectively baseless to form
the foundation of an unfair-competition claim based upon malicious litigation.
Further, I dissent from the entirety of the majority’s holding regarding the
appellees’ defamation claims and would affirm the judgment of the court of
appeals on those claims.
I
Defamation
{¶ 98} The jury carefully considered five separate alleged instances of
defamation. Jurors decided that two of those statements were defamatory, that the
American Chemical Society (“ACS”) had made those statements with malice, and
that defendants had suffered damages. The majority seeks to thwart the jury’s
verdict by imposing its own verdict.
Publicity as a Weapon
{¶ 99} On April 11, 2002, Michael Dennis, the senior lawyer at Chemical
Abstract Service (“CAS”), called Michael Conley, Leadscope’s chief financial
officer, requesting a meeting—a meeting at which ACS would eventually demand
Leadscope’s patent and $1 million. Dennis threatened to bring “both [a] civil and
criminal complaint” and “fast and furious publicity” if Leadscope refused to meet
with ACS. When Leadscope did not accede to ACS’s settlement demands, ACS
unleashed its destructive, two-pronged strategy—litigation and publicity. The
publicity proved the more devastating.
{¶ 100} A jury spent weeks hearing testimony about Leadscope’s path
from innovation to devastation. The jury found that, by far, Leadscope had been
harmed the most by the publication of defamatory statements made by ACS. The
verdicts and interrogatories are attached to this opinion as an appendix. Even
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January Term, 2012
though the jury found that Leadscope had proven claims for tortious interference
and unfair competition, nearly 70 percent of the damages awarded by the jury to
Leadscope were attributable to the defamatory statements of ACS. For the
individual plaintiffs, the jury found that as far as general damages were
concerned, Blower, Johnson, and Myatt suffered damages equally from the unfair
competition and the defamation.
{¶ 101} It should be no surprise that ACS’s comments about Leadscope
and its founders, especially to the particular audiences it chose, were devastating.
ACS, a venerable institution chartered by Congress, the world’s largest scientific
society with over 164,000 members and self-described as “one of the world’s
leading sources of authoritative scientific information,” accused three of its
former employees of stealing technology from CAS. The jury, like ACS, realized
the import of that type of accusation. That purveyor of “authoritative scientific
information” announced to the 1,900 employees of ACS—employees who were
colleagues, competitors, and potential customers of Leadscope and its founders—
that Leadscope and its founders had “sought and received a patent for technology
indistinguishable from a project on which they worked while employees of the
Society’s Chemical Abstracts Service” and that ACS would act “to protect its
intellectual property and proprietary information.” ACS then admonished the
1,900 people that it just notified of the lawsuit to not comment upon it to anyone
else.
{¶ 102} Ten days later, ACS ignored its own advice and spoke, through its
attorney, to Columbus’s Business First, a business-oriented newspaper. To a
reporter from the business newspaper of Leadscope’s home town, a town where
Leadscope had been attempting to raise capital, ACS essentially said that
Leadscope’s central product was stolen from ACS.
{¶ 103} ACS, “one of the world’s leading sources of authoritative
scientific information,” announced to an audience that included the scientific
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world and the financial world that virtually everything that Leadscope was built
upon was stolen. A few words to the right audience can be ruinous. And the jury
determined that those words were ruinous to Leadscope, Blower, Johnson, and
Myatt. The majority has not demonstrated why those jury verdicts should not
stand.
Legal Standard
{¶ 104} The law on defamation is not complicated. As the majority
relates, defamation occurs when a publication contains a false statement made
with some degree of fault that reflects injuriously on a person’s reputation or
affects a person adversely in his trade, business, or profession. Jackson v.
Columbus, 117 Ohio St. 3d 328, 2008-Ohio-1041, 883 N.E.2d 1060, ¶ 9. The
majority, however, finds that the statements made by ACS are not defamatory,
despite the fact that the claims of Leadscope and the individual defendants were
not wanting as to any element necessary to prove defamation. And the majority
does not assert that any privilege applies to ACS. In both instances—the
employee memorandum and the Business First article—the statements made by
ACS were false, were made with the knowledge that they were false, injured the
reputations of Leadscope and the individual defendants, and adversely affected
them in their business.
A
Business First Article
{¶ 105} The jury awarded damages based on a statement from ACS’s
counsel in the May 11, 2002 edition of Business First. The statement reads, “Our
motivation in filing suit is to acquire back the protected information that they took
from us.” ACS’s counsel demonstrated no equivocation. He did not claim to be
quoting the complaint. He said that the defendants had taken protected
information from ACS. That statement was false, ACS knew it was false, and it
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injured Leadscope and the individual defendants. The majority concocts novel
legal theories to save ACS from the jury’s verdict.
1. ACS Is Not a Newspaper
{¶ 106} The majority cites four cases involving newspapers as defendants
in support of its statement that a court must review the statement at issue under
the totality of the circumstances and within context: Mann v. Cincinnati
Enquirer, 1st Dist. No. C-09074, 2010-Ohio-3963, ¶ 12, citing Scott v. News-
Herald, 25 Ohio St. 3d 243, 253, 496 N.E.2d 699 (1986); Mendise v. Plain Dealer
Publishing Co., 69 Ohio App. 3d 721, 726, 591 N.E.2d 789 (1990); and
Connaughton v. Harte Hanks Communications, Inc., 842 F.2d 825, 840 (6th
Cir.1988), aff’d 491 U.S. 657, 109 S. Ct. 2678, 105 L. Ed. 2d 562 (1989). Those
cases actually say that the court must look to the entire “article”—the majority
substitutes the word “publication”—to determine whether the statements at issue
are defamatory. That is, when a newspaper is being sued for statements appearing
in an article, the court should look at everything the newspaper published in the
article in determining whether the statements at issue were defamatory. The
newspaper, when it is being sued, gets credit for its attempt to balance the
allegedly defamatory statements with other material. In discussing context, the
court in Scott said:
To evaluate an article’s broader context we must examine
the type of article and its placement in the newspaper and how
those factors would influence the reader’s viewpoint on the
question of fact or opinion.
Scott v. News-Herald at 253. ACS was not making editorial decisions. It was
simply making defamatory statements.
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{¶ 107} The majority cites newspaper cases that simply do not apply to
ACS. For instance, the majority quotes Connaughton as saying, “[T]he words of
the publication should not be considered in isolation, but rather within the context
of the entire [publication] and the thoughts that the [publication] through its
structural implications and connotations is calculated to convey to the reader to
whom it is addressed.” Id. at 840.
{¶ 108} When one views that quote as part of the entire sentence as it
appeared in Connaughton, it is clear that the case is discussing the newspaper’s
entire process in putting a story to print:
Other factors to be scrutinized are conversations between
the editor and/or other management personnel with reporters, or
the author of the article, concerning the research and development
of a controversial story; decisions and reasons relating to selective
interviews and selective investigations; the manner of
implementing interviews; the importance and veracity of
information relied upon in developing the article, always mindful
of the caveat that the words of the publication should not be
considered in isolation, but rather within the context of the entire
article and the thoughts that the article through its structural
implications and connotations is calculated to convey to the reader
to whom it is addressed.
Id. at 840.
{¶ 109} Business First is not being sued here. If it were, Business First
would get credit for the “balanced report of both parties’ arguments and defenses”
that the majority claims Business First gave. ACS, on the other hand, is
responsible for its lawyer’s words. Business First reported what ACS’s counsel
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January Term, 2012
said; ACS does not get the benefit of the nonparty newspaper’s attempt at writing
a balanced story.
2. The Defamed Party’s Opportunity to Deny the Defamatory Statement
Does Not Make the Statement Nondefamatory
{¶ 110} The majority states that the Business First article “contained a
balanced report of both parties’ arguments and defenses.” The majority excuses
ACS’s defamatory statement because it was balanced by Leadscope’s assertion in
the article that the lawsuit “has no merit.” This is a novel approach to defamation
law–if the victim denies the defamatory statement, the defamer is shielded from
liability because the statement is not defamatory. Does the majority really mean
that?
{¶ 111} It may be the case that the chance to publicly deny the veracity of
a defamatory statement might affect the amount of damages a plaintiff may
recover. But the opportunity to defend one’s good name cannot mean that the
defamatory statement itself was not defamatory. It just cannot.
3. A Statement About Litigation Is Qualifiedly Privileged
{¶ 112} Parties to a lawsuit are protected from claims of defamation
related to discussions about that lawsuit—but it is a qualified privilege. This
privilege is codified at R.C. 2317.05 and provides that a “fair and impartial
report” of the allegations made in a lawsuit is protected by a qualified privilege
that can be overcome by a showing of actual malice. The fact that a statement
accurately reports the contents of litigation does not render the statement “not
defamatory”—it only entitles the speaker to a qualified privilege, which can be
overcome by a showing of actual malice.
{¶ 113} The jury was instructed that ACS’s comments in Business First
were qualifiedly privileged in this case. The jury was also instructed that actual
malice occurs “when the [declarant] makes a false statement either with
knowledge that it is false or with reckless disregard of whether it is false or not.”
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{¶ 114} The jury found that ACS, through its counsel, had made with
actual malice the statement alleging that defendants had stolen something from
ACS. That was enough to overcome the privilege that applies to statements
regarding litigation in Ohio.
4. Client Authorization or Ratification
{¶ 115} The majority’s discussion of a client’s vicarious liability for the
statements of its attorney is superfluous, given its holding that the statements
made by ACS’s attorneys were not defamatory. That discussion is also
superfluous because it has nothing to do with this case. ACS makes no claim that
it had not authorized or ratified the statements of its attorney in the Business First
article. Instead, it attempted to persuade this court in its briefing that the
statements were fair commentary on the lawsuit, that the “statements at issue
* * * stay well within the allegations made in the complaint, and it is in fact
difficult to envision an ‘accurate summary of the allegations’ that would be more
restrained.” Can we not presume that ACS ratified or authorized the statements in
the complaint? Should this court reverse a $15 million verdict on a theory not
raised by the appellant at trial or on appeal, a theory that would have been
dismissed by the jury out of hand?
{¶ 116} Ohio attorneys would have nothing to fear from a holding in favor
of appellees. Attorneys should note well that they may speak out about a pending
lawsuit with no threat of liability as long as they do not make a false statement
either with knowledge that it is false or with reckless disregard of whether it is
false or not. They retain an absolute privilege for whatever they file or say in
court, Willitzer v. McCloud, 6 Ohio St. 3d 447, 448-449, 453 N.E.2d 693 (1983),
but they cannot expect to avoid liability for lying in public just because they first
have lied in a complaint.
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January Term, 2012
B
Memorandum to Employees
{¶ 117} ACS’s memorandum to all its employees regarding the litigation
was the second basis upon which the jury found that ACS had defamed the
defendants. The memorandum (which reads more like a press release) was sent to
approximately 1,900 employees around the globe, including Europe and Asia,
including employees having nothing to do with the case. It read:
Re: Communication re: Legal Matter
The nonprofit American Chemical Society has filed a legal
complaint against Leadscope, Inc., and its founders, who sought
and received a patent for technology indistinguishable from a
project on which they worked while employees of the Society’s
Chemical Abstracts Service in the mid-1990s.
The Society is a leader in publishing scientific journals and
databases that are indispensable to chemists around the globe, and
is acting to protect its intellectual property and proprietary
information.
Staff members are not authorized to comment on this
matter. It is important that you refrain from communicating and/or
commenting about this subject to any individual while the legal
process is being pursued.
(Emphasis added.)
{¶ 118} ACS, which had threatened “fast and furious publicity,” released
this memo to people in the same industry as defendants, alleging that defendants
had sought their patent fraudulently. The statement that Leadscope and its
founders had “received a patent for technology indistinguishable from a project
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on which they worked while employees of the Society’s Chemical Abstracts
Service” was false, ACS knew it was false, and it injured Leadscope and the
individual defendants.
{¶ 119} The majority goes along with the fiction that “[t]he internal
memorandum was simply a directive to all employees from ACS’s counsel to not
speak about the litigation.” Could it instead have been an effort to get as many
people in the industry talking about the lawsuit as possible?
{¶ 120} Regardless, the majority states that “[c]onsidering the
memorandum as a whole and considering the fact that the statements in the
memorandum were almost a verbatim recitation of the allegations in the
complaint, we hold that the statements are not defamatory.” Majority opinion at
¶ 80. To the contrary, a consideration of the memorandum as a whole does
nothing but lead to a conclusion that the memorandum is defamatory. Nothing in
the remainder of the memorandum softens the salvo from the opening paragraph
that defendants’ product’s technology was indistinguishable from that of a project
they worked on at CAS. There is nothing saying “we allege” or “we think”—the
reader is led to believe that ACS has compared the guts of the two projects and
found they were identical, that ACS’s only option is to go to war because of what
it has found. The jury determined that was not true.
{¶ 121} That the memorandum went to employees and involved litigation
was relevant, but not determinative. Again, ACS enjoyed a qualified privilege for
the statements made in the memorandum. But a falsehood contained in a legal
complaint when repeated outside of that complaint does not enjoy an absolute
privilege.
{¶ 122} This jury found that ACS had acted with actual malice in the
publication of the employee memorandum. Again, the majority ignores the jury’s
determination.
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January Term, 2012
C
Conclusion on Defamation
{¶ 123} ACS levied the most serious accusation that can be brought
against an inventor: you stole your invention. For the majority to determine that
those words are not defamatory is unfathomable. This is not an instance where a
court has been asked to determine whether a statement is simply rhetoric, satire,
or hyperbole and thus not defamatory. There is no way to paint the comments at
issue in this case as anything other than defamatory. There is no privilege
extensive enough to protect ACS from liability for those statements. The
statements were well chosen, well timed, and well placed by ACS to achieve their
maximum effect. Leadscope and its founders were profoundly damaged. But
ACS pays no price for its defamatory statements because they were more or less
reflective of statements contained in its complaint. The majority excuses ACS for
its published lies to the scientific community and financial community because it
had first lied to a federal court. Such is the reasoning when a result goes in search
of a justification.
II
Unfair Competition Based upon Malicious Litigation
{¶ 124} I concur in the majority’s holding that the appellees proved their
case for unfair competition based upon malicious litigation even under the
standard of law that the majority says should have been in place in this case. I do
not concur with the majority that under Ohio law, the Noerr-Pennington doctrine
establishes the elements of a claim for unfair competition based upon malicious
litigation. See E. RR. Presidents Conference v. Noerr Motor Freight, Inc., 365
U.S. 127, 81 S. Ct. 523, 5 L. Ed. 2d 464 (1961), and United Mine Workers of Am. v.
Pennington, 381 U.S. 657, 85 S. Ct. 1585, 14 L. Ed. 2d 626 (1965).
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A
Unfair Competition
{¶ 125} First, I would hold that this court need not even address ACS’s
appeal regarding malicious litigation. The individual defendants and Leadscope
alleged that ACS had engaged in unfair competition through three means:
malicious litigation, circulation of false statements and rumors about the
defendants, and false disparagement of individual defendants. The jury returned a
general verdict against ACS in favor of all the defendants; a jury interrogatory
asked on which grounds the jury had found for the defendants on the unfair
competition issue. The jury answered that ACS had engaged in unfair
competition in each of the three separate ways the defendants had alleged. In the
award of damages for the unfair-competition claims, there was no breakdown as
to how much the jury awarded under each theory.
Two-Issue Rule
{¶ 126} This court in Water Mgt., Inc. v. Stayanchi, 15 Ohio St. 3d 83, 85,
472 N.E.2d 715, 717 (1984), recognized that “[t]he concept of unfair competition
may also extend to unfair commercial practices such as malicious litigation,
circulation of false rumors, or publication of statements, all designed to harm the
business of another.” This court cited Henry Gehring Co. v. McCue, 23 Ohio
App. 281, 283-284, 154 N.E. 171 (8th Dist.1926) in support of that statement.
The majority opinion addresses only the malicious litigation aspect of the
defendants’ unfair-competition claims; it does not address the claims and jury
verdicts for the defendants that were based upon circulation of false statements
and rumors about defendants or false disparagement of individual defendants.
The trial court provided separate instructions for those claims, and the jury made
discrete findings as to each and recorded those findings in its answer to an
interrogatory.
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{¶ 127} Due to the two-issue rule, there is no need for this court to even
address the malicious-litigation portion of defendants’ unfair-competition claims.
Under the two-issue rule, if there is a general verdict and more than one theory of
liability, the verdict stands if one of the theories of liability was tried without
error:
This rule as generally applied is that, where there are two causes of
action, or two defenses, thereby raising separate and distinct issues,
and a general verdict has been returned, and the mental processes
of the jury have not been tested by special interrogatories to
indicate which of the issues was resolved in favor of the successful
party, it will be presumed that all issues were so determined; and
that, where a single determinative issue has been tried free from
error, error in presenting another issue will be disregarded.
H.E. Culbertson Co. v. Warden, 123 Ohio St. 297, 303, 175 N.E. 205 (1931).
{¶ 128} Here, we do not even have two separate causes of action; instead,
the jury was presented with three ways it could find that ACS had engaged in
unfair competition. The jury found in favor of the defendants on three variations
of the same tort. That an error was alleged as to one of those theories is irrelevant
under the two-issue rule. According to the jury, ACS was liable to the defendants
for unfair competition. The general damages verdict on unfair competition was
not tested by interrogatories. Even if the malicious-litigation aspect of
defendants’ claim were reversed, the general verdict remains, supported by the
remaining findings of unfair competition. The jury verdict on unfair competition
should therefore stand regardless of this court’s decision on the malicious-
litigation issue.
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B
Malicious Litigation
1. ACS Waived Noerr-Pennington Immunity and Thus Any Requirement
That the Defendants Prove ACS’s Claims Were “Objectively Baseless”
{¶ 129} The majority opinion states that in this case, “the jury instructions
were inadequate because they did not include the ‘objectively baseless’ element
necessary to meet the two-part test for an unfair competition claim.” But no Ohio
case has ever required that the litigation brought by a malicious-litigation
defendant be “objectively baseless.” See, e.g., Henry Gehring Co. v. McCue, 23
Ohio App. at 283-284, 154 N.E. 171; Harco Corp. v. Corrpro Cos., Inc., 9th Dist.
No. 1465, 1986 WL 12338, *3 (Oct. 29, 1986); Microsoft Corp. v. Action
Software, 136 F. Supp. 2d 735, 739 (N.D.Ohio 2001). The majority’s statement
about a “two-part test for an unfair competition claim” demonstrates a
fundamental misunderstanding.
{¶ 130} As the majority relates, those magic words—“objectively
baseless”—come from Professional Real Estate Investors, Inc. v. Columbia
Pictures Industries, Inc. (“PREI”), 508 U.S. 49, 113 S. Ct. 1920, 123 L. Ed. 2d 611
(1993), a case applying the Noerr-Pennington Doctrine. PREI, however, does not
establish a two-part test for malicious prosecution. Rather, it establishes a two-
part test for defeating a claim of Noerr-Pennington immunity. “[T]he Noerr-
Pennington doctrine, as it has evolved, is an affirmative defense which exempts
from anti-trust liability any petitioning activity designed to influence legislative
bodies or governmental agencies.” North Carolina Elec. Membership Corp. v.
Carolina Power & Light Co., 666 F.2d 50, 52 (4th Cir.1981). ACS seeks to
extend Noerr-Pennington immunity in this case to make it immune from liability
for filing suit against the defendants.
{¶ 131} PREI establishes that a party claiming immunity may still be
liable if the suit at issue constituted “sham litigation.” Under PREI, litigation
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cannot be deprived of immunity as a sham unless it is objectively baseless. PREI
at 60.
{¶ 132} Parties claiming immunity from liability pursuant to the Noerr-
Pennington Doctrine must raise that alleged immunity as an affirmative defense.
Bayou Fleet, Inc. v. Alexander, 234 F.3d 852, 860 (5th Cir.2000). Once the
malicious-litigation defendant “assert[s] Noerr-Pennington as an affirmative
defense, [the plaintiff] ‘has the burden of proving that its [opponent’s] conduct
was a sham.’ IGEN Internatl., Inc. v. Roche Diagnostics GmbH, 335 F.3d 303,
312 (4th Cir.2003), quoting Hosp. Bldg. Co. v. Trustees of Rex Hosp., 791 F.2d
288, 293 (4th Cir.1986).” However, ACS never asserted that it had Noerr-
Pennington immunity from liability in this action. Thus, defendants were under
no burden to establish that ACS’s claims constituted sham litigation under PREI.
{¶ 133} Since Noerr-Pennington immunity is an affirmative defense, ACS
was bound by Civ.R. 8(C) (affirmative defenses) to plead it in a responsive
pleading. Of course, it did no such thing. It waived the defense; ACS did not
even mention objective baselessness or the Noerr-Pennington Doctrine until its
motion for judgment notwithstanding the verdict, two weeks after the conclusion
of the trial. Now, after ignoring PREI, a United States Supreme Court case
decided nearly a decade before this litigation started, ACS wants to retroactively
make it control this case.
2. The Noerr-Pennington Doctrine Is Not a Part of
Ohio Unfair-Competition Law
{¶ 134} What ACS failed to assert as an affirmative defense—Noerr-
Pennington immunity—it now seeks to shoehorn in as necessary proof of a claim
for unfair competition. ACS was thus left to claim to this court that objective
baselessness has always been a part of malicious-litigation law in Ohio.
{¶ 135} But it has never been a part of malicious-litigation law in Ohio.
Greer-Burger v. Temesi, 116 Ohio St. 3d 324, 2007-Ohio-6442, 879 N.E.2d 174,
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is by no means an unfair-competition case and is inapposite. In Greer-Burger, at
paragraph two of the syllabus, this court applied the sham litigation analysis from
PREI to determine that the government, specifically the Ohio Civil Rights
Commission (“OCRC”), could not prevent an employer from suing an employee
over damages the employer suffered from the employee’s unsuccessful
discrimination claim. In Greer-Burger, the employer was prevented by an order
of the OCRC from even bringing his claim; he was actually denied access to the
courthouse. Id. at ¶ 16. ACS, on the other hand, has not been prevented from
seeking redress against the defendants. It had its day in court. It wants something
completely different—to be held harmless for any damage it may have caused
defendants by bringing its claims.
{¶ 136} The test for sham litigation in PREI arises once a party claims
immunity from liability. It is not a part of a test for malicious litigation. That is
why ACS never raised it below. That is why we should not apply it in this case.
C
Conclusion on Unfair Competition Based upon Malicious Litigation
{¶ 137} Although I do not agree with the majority that PREI, a case not
raised by ACS until after the conclusion of the trial, controls the law in Ohio on
unfair competition based upon malicious litigation, I do agree with the majority
that defendants proved that ACS’s claims were objectively baseless under that
standard and that the jury verdicts on appellees’ unfair-competition claims should
stand. Thus, I concur in the majority’s decision affirming the judgment of the
court of appeals on appellees’ unfair-competition claims.
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LUNDBERG STRATTON, J., concurring in part and dissenting in part.
{¶ 138} I concur in the majority’s holding that defines the proper tests for
unfair competition and defamation and in the majority’s holding that the actions
of American Chemical Society (“ACS”) were not defamatory as a matter of law.
I dissent only because I would remand the unfair-competition claim of Leadscope,
Inc., for a new trial, as opposed to deciding that issue in this court. Therefore, I
respectfully concur in part and dissent in part.
{¶ 139} The trial court provided the jurors the following instruction
regarding Leadscope’s unfair-competition claim: “In Ohio, unfair competition
may consist of malicious acts by way of litigation that is not founded in good
faith, but is for the purpose of harassing and injuring a rival producing and selling
the same commodities.” The jury returned a verdict in favor of Leadscope on its
unfair-competition claim, and the court of appeals affirmed.
{¶ 140} We hold that the trial court’s jury instructions pertaining to
Leadscope’s unfair-competition claim “were inadequate because they did not
include the ‘objectively baseless’ element necessary to meet the two-part test for
an unfair competition claim.” However, rather than remanding the cause for a
new trial for a jury to apply the correct instructions, the majority reviews the
evidence and affirms the judgment of the court of appeals after finding that
Leadscope would prevail on its unfair-competition claim against ACS under the
new instructions.
{¶ 141} “[I]t is a fundamental tenet of jury trial procedure that the judge
decides questions of law, and the jury, as factfinder, then decides questions of
fact.” Gallagher v. Cleveland Browns Football Co., 74 Ohio St. 3d 427, 436, 659
N.E.2d 1232 (1996). The jury is in the best position to judge the credibility of
witnesses because the jury “ ‘ “is best able to view witnesses and observe their
demeanor, gestures and voice inflections, and use these observations in weighing
the credibility of the proffered testimony.” ’ ” State v. Ross, 9th Dist. No.
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09CA009742, 2012-Ohio-536, ¶ 42, quoting State v. Cook, 9th Dist. No. 21185,
2003-Ohio-727, ¶ 30, quoting Giurbino v. Giurbino, 89 Ohio App. 3d 646, 659,
626 N.E.2d 1017 (8th Dist.1993). “The jury alone, as the trier of fact, has the
duty to decide what weight should be given to the testimony of any expert
witness.” Kokitka v. Ford Motor Co., 73 Ohio St. 3d 89, 652 N.E.2d 671 (1995),
paragraph two of the syllabus. Thus, the “weight to be given evidence and the
credibility of witnesses are jury issues.” State v. Jamison, 49 Ohio St. 3d 182,
191, 552 N.E.2d 180 (1990), citing State v. DeHass, 10 Ohio St. 2d 230, 227
N.E.2d 212 (1967), paragraph one of the syllabus.
{¶ 142} In rendering a verdict in favor of Leadscope regarding its unfair-
competition claim, the jury in this case considered only whether ACS acted in bad
faith. Pursuant to our holding herein, the jury should have also considered
whether ACS’s complaint alleging that Leadscope appropriated trade secrets was
objectively baseless. But it will never have that opportunity because the majority
has reached its own conclusion. In my opinion, the majority improperly reviews
and weighs the evidence, including expert testimony, presented by both ACS and
Leadscope, in concluding that there is sufficient evidence to support Leadscope’s
unfair-competition claim against ACS. I believe that the majority has usurped the
jury’s duties of weighing and determining the credibility of evidence. I would
remand this case for a new jury trial regarding Leadscope’s counterclaim for
unfair competition. As we stated in State v. Petro, 148 Ohio St. 473, 501, 76
N.E.2d 355 (1947), “[i]t is the minds of the jurors and not the minds of the judges
of an appellate court that are to be convinced.”
{¶ 143} Therefore, while I concur in the majority’s substantive holding, I
would remand this cause for a new trial on Leadscope’s unfair-competition claim.
Accordingly, I concur in part and dissent in part.
O’DONNELL, J., concurs in the foregoing opinion.
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CUPP, J., concurring in part and dissenting in part.
{¶ 144} I concur in paragraph one of the syllabus and agree that for a party
to succeed on a claim of unfair competition based on an opposing party’s filing of
a legal action, the party asserting the claim must establish both that the legal
action is objectively baseless and that the opposing party had the subjective intent
to injury the party’s ability to be competitive. I am unable to agree, however, that
the jury’s determination on this claim can be affirmed as a matter of law upon this
court’s own review of the record in our application of the correct standard. As
explained in Justice Lundberg Stratton’s separate opinion, this cause should be
remanded to the trial court for further proceedings on the unfair-competition
claim.
{¶ 145} I agree with much, but not all, of the legal analysis contained in
Justice Pfeifer’s separate opinion regarding the defamation claims. The two
allegedly defamatory occurrences specifically at issue gave rise to jury questions
as to whether the statements were indeed defamatory, and the jury’s conclusions
that they were defamatory are entitled to deference. As the appellate court stated
in affirming on the defamation claims, sufficient evidence was presented “upon
which the jury could find by clear and convincing evidence that ACS published
the statements * * * with actual malice” to overcome any privilege that attached.
Am. Chem. Soc. v. Leadscope, 10th Dist. No. 08AP-1026, 2010-Ohio-2725, ¶ 61.
I would affirm the judgment of the court of appeals as to the defamation issues.
__________________
Vorys, Sater, Seymour and Pease L.L.P., Michael G. Long, and Kimberly
Weber Herlihy; and Jenner & Block L.L.P., David W. DeBruin, Matthew S.
Hellman, Lindsay C. Harrison, and Matthew E. Price, for appellant.
Squire, Sanders & Dempsey (US) L.L.P., Alan L. Briggs, Aneca E.
Lasley, Christopher F. Haas, Pierre H. Bergeron, and Colter Paulson, for
appellees.
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Michael DeWine, Attorney General, Alexandra T. Schimmer, Solicitor
General, and David M. Lieberman, Deputy Solicitor, urging reversal for amicus
curiae state of Ohio.
Jones Day, Douglas Cole, and Mathew A. Kairis, and Linda Woggon,
urging reversal for amicus curiae Ohio Chamber of Commerce.
Bricker & Eckler and Anne Marie Sferra, urging reversal for amici curiae
Ohio Manufacturers’ Association and Ohio Council of Retail Merchants.
Eugene P. Whetzel, urging reversal for amicus curiae Ohio State bar
Association.
______________________
THE APPENDIX TO JUSTICE PFEIFER’S
CONCURRING AND DISSENTING OPINION
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