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DEREGULATION AND THE DEMISE OF SHAM LITIGATION. EVIDENCE FROM APPELLATE DECISIONS 1972-2006 By Christopher C. Klein. Sham Litigation. The use of regulatory agencies or the courts to harass competitors in order to achieve an anticompetitive goal. Such goals may include

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deregulation and the demise of sham litigation

DEREGULATION AND THE DEMISE OF SHAM LITIGATION

EVIDENCE FROM APPELLATE DECISIONS 1972-2006

By Christopher C. Klein

sham litigation
Sham Litigation
  • The use of regulatory agencies or the courts to harass competitors in order to achieve an anticompetitive goal.
  • Such goals may include
    • Prevent or delay entry to a market
    • Prevent or delay expansion by a competitor
    • Cause a rival to lose sales or exit
    • Raise rivals’ cost of doing business
sham litigation and the sherman act
Sham Litigation and the Sherman Act
  • The victims of sham litigation may sue the perpetrator for treble damages under the Sherman Antitrust Act, if the alleged sham act
    • Enforced a conspiracy to fix prices or otherwise lessen competition
    • Was an attempt to monopolize a market
supreme court 1961
Supreme Court 1961
  • In Eastern Railroad Presidents Conference v. Noerr (1961):
  • Attempts to influence government are immune to challenge under the Sherman Act, unless the attempts are a “mere sham” aimed at disrupting the business relationships of a competitor.
supreme court 1972
Supreme Court 1972
  • In California Motor Transport Co. v. Trucking Unlimited (1972):
  • Litigants guilty of sham litigation are not shielded from antitrust liability
  • A pattern of claims brought “with or without” probable cause may constitute sham litigation
supreme court 1993
Supreme Court 1993
  • In Professional Real Estate Investors v. Columbia Pictures Indus. (1993):
  • For sham litigation to face antitrust liability it “...must constitute the pursuit of claims so baseless that no reasonable litigant could realistically expect to secure favorable relief.”
  • Applies only to single acts, not patterns
initial research question
Initial Research Question
  • Did the Supreme Court’s 1993 decision in PREI alter the frequency or characteristics of antitrust suits on claims of sham litigation?
case data 1972 2006
CASE DATA: 1972-2006
  • Characteristics of all antitrust suits
    • on claims of sham litigation
    • that produced decisions in federal Circuit Courts of Appeal
    • before and after 1993
  • Antitrust suits were identified by searching LEXIS for citations to the Supreme Court’s decisions in California Motor Transport and Prof. Real Estate Investors
trends
Trends
  • The number of cases brought per year generally declined
  • There is no statistically significant change in frequency around 1993
  • A statistically significant break in the trend occurs in the mid-1980s
  • Why?
initial trend analysis
Initial Trend Analysis
  • Basic Model
  • Nt = B1 + B2Trend + B3Trendsq + B4Dy + B5(Dy*Trend) + B6(Dy*Trendsq) + ut
  • Dy = 1 starting year y
  • Spline Regression
  • Nt = B1 + B2Trend + B3Trendsq + B4Ty + B5Tysq + et
  • Ty is a trend starting in year y
trend analysis 2
Trend Analysis 2
  • Add
    • measures of GDP or growth rate
    • measure of opportunity cost
  • Nt = B1 + B2Trend + B3Trendsq + B4Dy + B5(Dy*Trend) + B6(Dy*Trendsq) + B7GDPt + B8Primet + ut
decline of regulation in 1980s
Decline of Regulation in 1980s
  • Staggers Act (1982) removes federal price regulation of railroads and motor carriers
  • Most states deregulate motor carriers by 1990
  • 1983 AT&T divestiture reduced incentive to use local monopoly to block entry in long distance or equipment manufacturing
  • PURPA (1978) and FERC Order 888 (1986) reform Electric Industry
conclusion
Conclusion
  • Declining frequency of antitrust suits on sham litigation claims is more likely the result of regulatory reform than of changes in the case law.
  • “Deregulation” removed many low cost opportunities to deter entry or harass competitors.
  • Patents are major source of recent suits.