Ohio's Standard for Malicious Litigation Sounds Familiar

I rely entirely on John Marsh of Hahn Loeser to provide details on one of the year's most important competition cases, American Chemical Society v. Leadscope. For this post, the holding is relevant in that it establishes - at least in Ohio - a two-part test for determining when malicious litigation can serve as the basis for an unfair competition claim. That test requires a plaintiff to show:

(1) that the legal action is objectively baseless; and
(2) that the opposing party had the subjective intent to injure the party's ability to compete.

Leadscope involved a claim of trade secrets misappropration over software code. And the standard the Supreme Court of Ohio adopts is strikingly similar to the tests courts use over related claims. Those claims are:

(1) bad faith fee-shifting petition by a defendant under the Uniform Trade Secrets Act; and
(2) sham litigation under antitrust law.

It makes sense all three claims would have similar tests. The UTSA fee-shifting test does vary from state to state, but in the main the Leadscope test constitutes the majority rule. For defendants who feel as if litigation has served no purpose than to deter competition and impose litigation costs, the main theories of recovery are the following:

(1) An independent tort claim like that advanced in Leadscope. The claim may depend state to state, but generally the theories are abuse of process, malicious prosecution, violation of antitrust law, and unfair competition.

(2) Fee-shifting statutes or contract provisions. The UTSA bad-faith fee-shifting clause is one that is commonly invoked, and is not a "claim" in the sense that a full-blown trial would be required to resolve it.

(3) A court's power to sanction, under its inherent authority, as part of the discovery process, or even against an attorney directly for unnecessarily increasing litigation costs.

The upside of option (1) is that, in theory, the recovery is not limited to attorneys' fees. In Leadscope, for instance, the defendants received $26.5 million in compensatory and punitive damages.