From Law360: Strategies for Protecting Market Share, Part 1

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(Editor’s note: Law360 has published a four-part series on protecting market share, written by Jeffrey Gould, general counsel for The Saint Consulting Group, and The Saint Report will republish the series over the next few weeks.)
By Jeffrey R. Gould, The Saint Consulting Group
Many companies increasingly use grassroots political techniques and strategic litigation to actively generate opposition against a competitor’s project and protect their market share. This series of Law360 Expert Analysis articles has broad implications in competitive commercial real estate battles across virtually every industry and sector.
The articles describe how recent court rulings upholding rights of citizens to petition their government provide companies with highly effective strategies to prevent competitors from gaining a foothold even when the underlying motive is protecting market share and eliminating opposition.If companies understand how this is done and what the boundaries are, they can take steps to stop a competitor from destroying a strategic project. These articles are intended as a tool to help educate business leaders on highly effective and legally permissible strategies to protect market share and how to spot when it is being used against you.Part 1 summarizes the impact of U.S. Supreme Court rulings on the First Amendment’s right to petition clause and recent protections against strategic lawsuits against public participation from developers; part 2 will explore the legal foundation provided by the first two Supreme Court cases on Noerr and Pennington; part 3 will show how the Supreme Court clarified and expanded the legal foundation of the Noerr-Pennington Doctrine; and part 4 will provide new insights from recent lower court rulings that expand the right to petition clause.In most businesses, growth is essential. Every year in increasingly competitive markets businesses struggle to grow and protect hard fought market share. It’s not just about the NIMBYs (Not in My Back Yard) anymore, it is often competitors actively funding and organizing efforts to thwart competing projects.The neighborhood group has a lawyer, a traffic engineer and a peer review of the environmental study. They are running ads in the local paper and using social networking with micro targeting to identify and engage opponents to your new project. They have filed two appeals and are likely going to delay you for years in the courts. Is this an organic grassroots effort undertaken by a coalition of concerned and remarkably well funded local residents or is it something more?

Protecting market share through lobbying, political organizing and strategic litigation is highly effective and legally protected when done correctly. When done incorrectly, it exposes the entity to a virtual minefield of legal exposure, public relation nightmares and costly fines. Understanding what is legally acceptable is crucial not only for guiding your efforts to determine how far you are willing to go to stop a competitor but also to knowing what you can do when a competitor is targeting you.

The legal framework for market share protection is based upon First Amendment rights to free speech and decades of legal precedent supporting the right to petition government in protection of one’s business interests, evolving in four U.S. Supreme Court rulings since 1961 now known as the Noerr-Pennington doctrine.

The impact of the Noerr-Pennington doctrine translates into companies using grassroots political techniques and strategic litigation increasingly to stop competitors’ projects and protect their market share. It is very common, highly effective and completely legal when properly implemented. However, many companies are attempting to engage in this type of anti-competitive activity but are doing so haphazardly and in a manner that violates the law and could mean real trouble for them.

Federal courts have found that the First Amendment provides immunity for certain government petitioning activities under the Noerr-Pennington doctrine. These rulings have sanctioned the right to organize community opposition that urges government officials and agencies to deny land use permits to applicants, even when the underlying motive of the opposition is protecting market share and eliminating competition.

These court rulings uphold the rights of citizens to petition their government and provide companies with highly effective strategies to prevent their competitors from gaining a foothold even when the underlying motive is protecting market share and eliminating opposition.

Many companies do not realize that their competitors are actively generating opposition to their projects. If they understand how it is done and what the boundaries are, they can take steps to stop a competitor from destroying a strategic project.

The courts have sanctioned the right to organize community opposition that urges government officials and agencies to deny land use permits to applicants, even when the underlying motive of the opposition is protecting market share and eliminating competition. What’s more, the courts are protecting third-party funding sources, in many cases anonymous funding sources, which support the opposition efforts in order to block potential competition.

The courts have found that the First Amendment provides immunity from certain governmental petitioning activities as provided for by the Noerr-Pennington doctrine. The courts have specifically found the doctrine protects petitioning of various village boards and administrative agencies in regard to land use development. There are two main exceptions to such immunity, sham lawsuits and fraudulent misrepresentations, where such misrepresentations are material to the government’s (i.e., the judge’s) action in the litigation, and the litigation is objectively meritless.

The courts have also ruled that the accompanying public relations campaigns related to those activities are similarly protected. The doctrine provides absolute immunity for petitioning legislative and executive bodies, as well as the accompanying public relations campaigns. Further, even where the opposition to development is supported by anonymous third parties with anti-competitive motives, the petitioning activity is protected.

State legislatures are providing additional support for constitutionally-protected petitioning activity by adopting anti-SLAPP statutes. These statutory laws provide expedited mechanisms for dismissing lawsuits aimed at First Amendment petitioning activity, and coercive penalties for violating these statutes through mandatory awards of legal fees to the defendants who must defend against SLAPP lawsuits.

The Noerr-Pennington doctrine and its progeny of cases, together with anti-SLAPP legislation across the nation, provide clear guidelines for protecting market share within the boundaries of competitive engagement.

Key Points

  • The U.S. Constitution guarantees all citizens the right to petition — the right to ask government to take action, or not to take action — regarding any matter.
  • The federal Sherman Antitrust Act prohibits anti-competitive business activities that would cause a “restraint” in interstate trade and commerce, adversely affecting the consumer by causing shortages and higher prices. The Supreme Court has long held that the Sherman Act is intended to protect competition, not competitors.
  • In the Noerr case, the Supreme Court ruled that promoting the adoption and enforcement of laws harmful to a competitor is protected as petitioning under the First Amendment to the Constitution. The right to petition does not rest upon the intentions of the petitioner, nor upon the methods he uses, even if they are devious, deceptive, unethical or even reprehensible.
  • In the case of United Mine Workers v. Pennington, the Supreme Court ruled that joint efforts to influence public officials do not violate antitrust laws even if the actions are intended to eliminate competition. The right to petition protected their efforts. If the petitioning activity is valid, the petitioner is immune from antitrust liability.
  • The Supreme Court has ruled that litigation is not a sham unless (1) it is objectively baseless — such that no reasonable litigant could expect to win and (2) the baseless lawsuit seeks to interfere directly with the competitor’s business relationships by the use of government process.
  • In the case of Rubloff Development Group v. SuperValu Inc. and Saint Consulting Group, a developer sued a grocery chain and its land use consultant for opposing the developer’s plans to build a shopping center that would include a competing store. The court ruled that the defendants’ activities were protected petitioning under the Noerr-Pennington doctrine, even where the opposition to the development project was supported by anonymous third parties with anti-competitive motives.
  • Individuals and community groups are sometimes sued for exercising their constitutional rights through strategic lawsuits against public participation, which seek to intimidate citizens into silence by “slapping” them with expensive litigation. To protect against SLAPP lawsuits, the legislatures in many states have adopted anti-SLAPP statutory laws that provide expedited mechanisms for dismissing such lawsuits and recovering the legal fees associated with the effort to dismiss.

SLAPP Lawsuits

The Rubloff and Mercatus cases that will be discussed in part 4 of this series expanded the constitutional right to participate in government and civic affairs, speak freely on public issues, and petition government officials for redress of grievances. Yet individuals and community groups are sued for exercising these constitutional rights through strategic lawsuits against public participation, which seek to intimidate citizens into silence by “slapping” them with expensive litigation.

Generally, a SLAPP is:

1. A civil complaint or counterclaim;
2. Filed against individuals or organizations;
3. Arising from communications to government or speech on an issue of public interest or concern.

SLAPPs are often brought by corporations, real estate developers, government officials and others against individuals and community groups who oppose them on issues of public concern. SLAPP filers frequently use lawsuits based on ordinary civil claims such as defamation, conspiracy, malicious prosecution, nuisance, interference with contract and/or economic advantage, as a means of transforming public debate into lawsuits, in order to frighten or intimidate citizens who lack the resources to defend against such litigation.

Ultimately, most SLAPPs are not legally successful. Nevertheless, while most SLAPPs do not succeed in court, they “succeed” in the public arena. This is because defending a SLAPP, even when the legal defense is strong, requires a substantial investment of money, time, and resources. The resulting effect “chills” public participation in, and open debate on, important public issues. This chilling effect is not limited to the SLAPP defendants — other people refrain from speaking out on issues of public concern because they fear being sued for what they say.

The filing of a SLAPP also impedes resolution of the public matter at issue by removing the parties from the public decision-making forum, where both the cause and resolution of the dispute can be determined, and placing them before a court, where only the alleged “effects” of the public controversy may be determined.

For example, imagine that a company asks for a zoning variance to place an incinerator in a residential area. When local residents object to the city council, the company sues them for “interference with contract.” The judge hearing the suit cannot decide the real issues — the location of the incinerator — but will have to spend considerable judicial resources to decide the side issues of the alleged “damages” or other consequences of the public debate on the real issues.

Every year, thousands of people are sued for participating in government or for speaking out on public issues. SLAPP targets have been sued for engaging in a wide variety of protected speech and protected expression activities, including writing a letter to the editor, circulating petitions, telephoning a public official, reporting police misconduct, erecting a sign or displaying a banner on their property, complaining to school officials about teacher misconduct or unsafe conditions in the school, speaking at a public meeting, reporting unlawful activities, testifying before Congress or state legislatures, speaking as an officer of an active public interest group, and filing a public interest lawsuit.

To protect against SLAPP lawsuits, the legislatures in many states have adopted anti-SLAPP statutory laws that provide expedited mechanisms for dismissing such lawsuits and recovering the legal fees associated with the effort to dismiss. The intent of the legislatures in adopting such statutes is to dissuade people from filing SLAPP suits in the first place, by fast-tracking their dismissal and creating the prospect of an award to the defendants of their legal fees incurred in defending against such suits. Indeed, in many states payment by the plaintiffs of legal fees incurred by the defendants is required if the defendants prevail in dismissing the SLAPP suit.

At present, there are 25 states with anti-SLAPP statutes in place, and 10 states with legislative bills pending to create anti-SLAPP statutes. In addition, there are two states where the equivalent of anti-SLAPP protection has been created by the judiciary in common law case authority. Clearly, the trend across the nation is to continue to advance anti-SLAPP protection and penalties for violation of such laws.

—By Jeffrey R. Gould, The Saint Consulting Group

Jeffrey Gould is general counsel of The Saint Consulting Group, a land use political consultancy.

The information in this series can be downloaded as a comprehensive white paper 
here.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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