Antitrust Pleading Standards After Twombly

In antitrust, the Supreme Court is on a roll. After giving scant attention to antitrust cases over the last two decades, the Supreme Court has now issued five substantive antitrust decisions in the last 17 monthsóone of the most intense periods of antitrust activity in the Court's history. And the trend of these decisions is clear: Without exception, each has made it tougher on antitrust plaintiffs in some way. The aggregate net effect on future antitrust litigation may well be quite significant.

The most recent decision, Bell Atlantic Corp. v. Twombly, has the potential to have the most practical importance of all these recent decisions, with potential implications for all federal civil actions. If the lower courts seize on the freedom that the Supreme Court has given them to require plaintiffs to actually plead facts that support a plausible theory of liability, manyómaybe mostófrivolous antitrust claims (a nontrivial fraction of all antitrust claims) should be defeated at the pleading stage, thus avoiding the cost and expense of discovery and reducing the incentives for extortionate settlements. But note the qualifiers hereóthe lower courts have to (1) take advantage of this new freedom, (2) insist on facts, rather than just wishes, hopes, and assumptions, and (3) interpret "plausible" as something close to "realistic," and not just "conceivable." If all these things come to pass, antitrust plaintiffs' lawyers will have a lot harder job than they have today.

It is not really impossible to get a competently drafted antitrust complaint dismissed today, but it sure seems that way. The reality is that even complaints that are based on nothing more than a newspaper story about a dawn raid in Europe, with absolutely no other facts relating to the U.S., are regularly upheld as sufficient to permit discovery. As a result, the vast majority of antitrust complaints filed today, regardless of merit, result in discovery. Some fail at the summary judgment stage, but only after what is frequently millions of dollars in legal fees and discovery costs. On the other hand, many others result in settlements that, while small in relation to theoretical exposure, are still big money, both to the companies involved and, just as important, to the plaintiffs' lawyers, who receive the bulk of the economic benefits from these cases. Twombly opens the door to the possibility of a dramatic change in this picture.

Twombly announced a new threshold for Section 1 pleading, requiring antitrust plaintiffs to provide "plausible grounds to infer an agreement" and to plead a "context that raises a suggestion of a preceding agreement." And what is perhaps even more important, the Court explicitly abandoned the pleading standard it had articulated 50 years earlier in Conley v. Gibson, where the Court held that a complaint was sufficient unless there was "no set of facts" that could support its allegations. This widely inclusive standard had become embedded in decisions about the sufficiency of pleadings, especially in antitrust cases. As others have noted, perhaps this approach was acceptable in the days before massive class actions, but today the stakes are enormous. For example, the putative class in Twombly included hundreds of millions of telephone consumers across the country over a long period of time, so the theoretical damage liability was a very big number indeed. Allowing such a case to proceed without any real recitation of an actual antitrust violation simply encourages legal extortion. That is exactly what happens in many cases, where it is cheaper (and far safer) to settle...