It is possible that companies may, through regulatory and litigation processes, be able to exclude or marginalize their competitors from the market and therefore charge higher prices, limit output, maintain the status quo price, or diminish innovation. But while these strategies may offer a cheap mechanism for non-price predation, litigation and regulatory process have been set up to protect public goods regardless of the risk that their use may negatively impact competition. Furthermore: ‘assessing on a case-by-case basis the welfare effects of each use of the regulatory and litigation process through some form of sophisticated cost benefit analysis would be too burdensome and would generate too much uncertainty, chilling the legitimate use of such governmental processes and thus frustrating their aims. For this reason, in practice, the use of the regulatory and/or litigation process stays presumptively outside the scope of competition law, through the operation of some form of antitrust immunity, in both the U.S. and in Europe, this being either explicit, or implicit.’

However, it is commonly accepted that the abuse of such regulatory and litigation processes can infringe competition law. In particular, the antitrust category of “sham litigation” (in the U.S.) or “vexatious litigation” (in the EU) enables parties to argue that litigation amounts, under certain conditions, to an infringement of competition law. This is particularly the case as regards IP-related administrative and judicial procedures. In this paper, the authors seek to identify a workable legal standard for this category of antitrust enforcement as follows:

Section II explores “sham” litigation within the wider context of antitrust immunity for the use of governmental processes. In general, these processes are presumed to be legitimate and to fall outside the scope of competition law. This section provides examples of the mechanisms through which this immunity arises, and of the main cases where it has been lifted and antitrust has been applied (e.g. providing false information to public authorities and product hopping in pharma cases, patent trolls).

‘Abuse’ of process is found to take two forms: fraudulent use of a regulatory process, or some form of misrepresentation in the context of a regulatory process, in particular before patent offices; and instigating litigation with the collateral purpose of inflicting an anticompetitive injury.

Section III looks at the different legal standards applying to “sham” or “vexatious litigation” in competition law.

In the US, sham litigation is an antitrust theory of harm that operates as an exception (or limitation) to the Noerr-Pennington doctrine. This doctrine extends immunity to litigation unless it constitutes “mere sham to cover . . . an attempt to interfere directly with the business relationships of a competitor.” The U.S. Supreme Court has adopted in PREI a two-parts test, according to which litigation is a sham when: (1) the lawsuit is “objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits” and (2) “the baseless lawsuit conceals an attempt to interfere directly with the business relationships of a competitor.

In its seminal ITT Promedia v. Commission judgment, the General Court of the EU accepted that vexatious litigation may “in wholly exceptional circumstances” constitute an abuse of a dominant position. While ‘exceptional circumstances’ is the main legal standard to identify circumstances under which competition law may interfere with the scope of IP law (with the notable exception of FRAND licensing), in the context of vexatious litigation this means: (1) circumstances where the judicial action cannot reasonably be considered to be an attempt to establish the rights of the undertaking concerned and would therefore serve only to “harass” the opposite party and (2) the action is part of a plan whose aim is to eliminate competition.

In Section IV, the authors develop their own definition of “sham” litigation – i.e. litigation that the plaintiff would not have started in the absence of benefits that accrue to the plaintiff from the very fact of litigating, irrespective of the likely litigation outcome. They then develop a typology based on who may benefit from litigation and what types of benefits may accrue to them. While this is interesting for the purposes of the authors’ development of a legal test for sham litigation, it need not detain us here.

Section V develops a stylised economic model which sets out the broad conditions under which parties would have incentives to engage in sham litigation. They then identify two types of tools to identify vexatious litigation, which are reviewed in detail in the following sections.

Section VI focuses on a “detect and punish” policy approach. This consists of detecting undesirable behaviours on the basis of a number of factors that indicate that litigation is vexatious. The weakness of this approach is that the factors that indicate that a given litigation might be a “sham” are necessarily imperfect. The authors link this approach to the typology they developed in section IV (which includes parasitic, collusive and predatory sham litigation) and conclude that different sets of indicators likely apply to different types of sham litigation.

Section VII then considers whether it would be preferable to design self-enforcing incentive mechanisms (e.g. loser party pays costs, settlement procedures). The authors provide an example of such a mechanism, but again conclude that it works differently for different types of sham litigation. Lastly, section VIII examines some practical applications of this theoretical framework in the context of patent litigation.


Like most papers written or co-written by Ioannis Lianos, this is extremely dense and thorough. It provides a comprehensive guide to vexatious litigation and abuses of regulatory processes in competition law. I’m not particularly convinced by the ‘legal standard’ analysis that the authors develop – it is quite vague as it stands, and it is not clear how it adds to existing legal tests without adding significant complexity to the analysis. However, this may reflect the complexity of the problem and actually reinforce the authors’ point that different types of vexatious claims seem to call for different legal tests.

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