American Chemical Society v. Leadscope, Inc.

[Cite as Am. Chem. Soc. v. Leadscope, Inc., 133 Ohio St.3d 366, 2012-Ohio-4193.]

AMERICAN CHEMICAL SOCIETY, APPELLANT, v. LEADSCOPE, INC., ET AL.,

APPELLEES.

[Cite as Am. Chem. Soc. v. Leadscope, Inc.,

133 Ohio St.3d 366, 2012-Ohio-4193.]

Unfair competition—An unfair-competition claim based on legal action must

show both that the litigation was objectively baseless and that it was

intended to injure the plaintiff’s ability to be competitive, but the verdict

for Leadscope on this claim stands—Defamation—As a matter of law,

American Chemical Society did not defame Leadscope and its

employees—Judgment upholding defamation verdict reversed.

(No. 2010-1335—Submitted September 7, 2011—Decided

September 18, 2012.)

APPEAL from the Court of Appeals for Franklin County,

No. 08AP-1026, 2010-Ohio-2725.

__________________

SYLLABUS OF THE COURT

1. To successfully establish an unfair competition claim based upon legal action,

a party must show that the legal action is objectively baseless and that the

opposing party had the subjective intent to injure the party’s ability to be

competitive.

2. In determining whether a statement is defamatory as a matter of law, a court

must review the totality of the circumstances and read the statement in the

context of the entire publication to determine whether a reasonable reader

would interpret it as defamatory.

3. A client is vicariously liable for its attorney’s defamatory statements only if

the client authorized or ratified the statements.

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SUPREME COURT OF OHIO

O’CONNOR, C.J.

RELEVANT BACKGROUND

Facts

{¶ 1} Appellant, American Chemical Society (“ACS”), is a nonprofit

corporation chartered by Congress that promotes the advancement of professional

chemists and the chemical sciences through publications, meetings, education,

and other activities throughout the world. 36 U.S.C. 20502.

{¶ 2} ACS’s largest division, Chemical Abstracts Service (“Chemical

Abstracts” or “CAS”), is in Columbus, Ohio. Chemical Abstracts produces

comprehensive databases of chemical information that include more than 20

million abstracts of chemistry-related literature and patents. The databases of

chemical compounds and chemical reactions are accessed by scientists and

researchers. Robert Massie is president of Chemical Abstracts; he reports to the

executive director of ACS.

{¶ 3} Appellees Paul E. Blower Jr., Ph.D., Glenn J. Myatt, Ph.D., and

Wayne P. Johnson were employed by Chemical Abstracts. During their

employment, Blower and Myatt worked to develop a software tool named

CAPathFinder (“PathFinder”) that was intended to improve the ability of

researchers to access and organize the voluminous information available in ACS’s

databases.

{¶ 4} Chemical Abstracts suspended the PathFinder project in 1997 to the

disappointment of Blower and Myatt, who believed the software product had

potential. Blower, Myatt, and Johnson soon resigned from Chemical Abstracts to

start their own business, Leadscope, Inc., to develop a software product to aid in

exploring and displaying chemical compounds. Massie personally expressed

concern to his colleagues that Blower, Myatt, and Johnson may have appropriated

a software code or other intellectual property developed while working on

comparable projects at ACS.

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{¶ 5} ACS learned in January 2001 that Leadscope had applied for a

patent. When ACS discovered appellees’ patent-application materials, ACS

formed a working group to analyze them, referred the matter to the legal

department, and retained outside counsel. Leadscope received a United States

patent for its software in November 2001.

{¶ 6} In early 2002, the ACS Governing Board for Publishing and the

ACS board of directors approved legal action against Leadscope if ACS and

Leadscope could not reach an amicable resolution. On April 11, 2002, Michael

Dennis, CAS’s legal-administration manager, called Leadscope’s chief financial

officer, Michael Conley, to set up a meeting on April 15. At the meeting, Dennis

presented Conley with a draft complaint alleging misappropriation of ACS’s

intellectual property and a letter stating that the complaint would be filed if the

parties could not resolve the matter immediately. At this point, Leadscope was

operating on venture capital and was attempting to secure new funding to meet

payroll by the end of the month.

{¶ 7} The parties then engaged in discussions over the next two weeks,

with ACS demanding $1 million and ownership of the Leadscope patent. After

the parties failed to reach a resolution, ACS filed a federal lawsuit against

Leadscope, Blower, Myatt, and Johnson (collectively, “Leadscope”) on May 1,

2002. On the same date, Dennis and another manager circulated an internal

memorandum to “All Staff” at ACS about the lawsuit. The memorandum stated:

Re: Communication re: Legal Matter

The nonprofit American Chemical Society has filed a legal

complaint against Leadscope, Inc., and its founders, who sought and

received a patent for technology indistinguishable from a project on

which they worked while employees of the Society’s Chemical

Abstracts Service in the mid-1990s.

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The Society is a leader in publishing scientific journals and

databases that are indispensable to chemists around the globe, and is

acting to protect its intellectual property and proprietary

information.

Staff members are not authorized to comment on this matter.

It is important that you refrain from communicating and/or

commenting about this subject to any individual while the legal

process is being pursued.

{¶ 8} Ten days later, a statement was published in Columbus’s Business

First newspaper. The article quoted ACS’s outside counsel as follows: “Our

motivation in filing suit is to acquire back the protected information that they took

from us.” The article described both the allegations in the complaint and

Leadscope’s response, including a statement from Myatt that the lawsuit “has no

merit” and a quote from Leadscope’s counsel that “[t]he timing of this lawsuit

[days before Leadscope was to close a venture-capital deal] speaks volumes as to

its invalidity.”

Procedural History

{¶ 9} ACS filed a complaint in the United States District Court for the

Southern District of Ohio on May 1, 2002. Leadscope moved to dismiss the

federal complaint for lack of diversity jurisdiction. ACS then voluntarily

dismissed its lawsuit and refiled it in the Franklin County Court of Common Pleas

in July 2002.

{¶ 10} The complaint alleged claims for breach of employment

agreements, misappropriation of trade secrets, unfair competition, breach of

fiduciary duty and the duty of loyalty, and conversion, and for violation of ACS’s

implied license under shop right. Leadscope responded by denying all claims and

filing counterclaims alleging defamation, tortious interference with business

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relations, unfair competition, violation of the Ohio Deceptive Practices Act,

intimidation and extortion, and violation of the Ohio Pattern of Corrupt Activities

statute.

{¶ 11} Jury trial began on February 4, 2008, and lasted eight weeks. After

the evidence had been presented to the jury, both sides moved for a directed

verdict. ACS specifically moved for a directed verdict on Leadscope’s unfair

competition claim, arguing that Leadscope “must prove by a preponderance of the

evidence that the ACS litigation was not founded upon good faith.” ACS then

defined “good faith” to mean that “ACS has no evidentiary support for its claims,

one; two, [ACS] know[s it has] no evidentiary support for [its] claims.” The trial

court denied ACS’s motion as well as Leadscope’s motion for a directed verdict.

{¶ 12} The parties then met with the judge regarding jury instructions.

During these conferences, ACS objected to submitting to the jury certain

instructions on many of Leadscope’s counterclaims, including the unfair

competition instruction. ACS asserted that it had an absolute privilege to make its

accusations against Leadscope unless those claims were objectively baseless, and

that the accusations could not have been objectively baseless because the trial

court had allowed the jury to decide their validity. ACS also addressed the legal

viability of Leadscope’s defamation counterclaim, asserting that ACS had a

qualified privilege to make its statements to its employees and the media because

the comments were related to litigation. The trial court made some changes based

on those objections.

{¶ 13} ACS also filed written objections to the jury instructions and

submitted the following proposed jury instructions on Leadscope’s unfair

competition allegation:

Unfair competition. Count Three of defendants’

counterclaim seeks damages from ACS for unfair competition by

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way of malicious litigation. You cannot find that ACS engaged in

unfair competition by malicious litigation unless LeadScope

proves each of the following basic requirements of that tort by a

preponderance of the evidence:

(1) That LeadScope was a competitor of ACS and that

LeadScope and ACS were producing and selling the same

commodities; and

(2) That ACS filed its lawsuit in bad faith and without

probable cause, meaning that ACS’s lawsuit had no basis and ACS

knew that the lawsuit had no basis; and

(3) That ACS filed its lawsuit maliciously for the purpose

of harassing and injuring LeadScope; and

(4) That LeadScope was injured as a proximate result of

ACS’s lawsuit.

{¶ 14} The trial court overruled ACS’s objections and instructed the jury

in accordance with the March 21, 2008 jury instructions as follows:

Malicious Litigation

In Ohio, unfair competition may consist of malicious acts by

way of litigation in court that is not founded in good faith, but is for

the purpose of harassing and injuring a rival producing and selling

the same commodities. It is the law that the pursuit of one

competitor by another, either in court or out of court, for the

purpose of injuring his business, is prohibited.

If you find by the greater weight of the evidence that Plaintiff has

committed malicious acts by way of litigation in the courts, or if

you find litigation was not founded upon good faith, but was

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instituted with the intent and purpose of harassing and injuring a

rival engaged in the same business you should find for the

Defendants on their counterclaim of unfair competition in an

amount that would fairly compensate Defendants for the damage

suffered by reason thereof.

{¶ 15} The jury returned verdicts against ACS on its claims for breach of

contract and misappropriation of trade secrets. ACS prevailed on two of

Leadscope’s counterclaims, but the jury returned verdicts in favor of Leadscope

on its counterclaims for defamation, tortious interference, and unfair competition.

Leadscope was awarded a total of $26.5 million in compensatory and punitive

damages, plus attorney fees. The trial court overruled ACS’s postverdict motions

for judgment notwithstanding the verdict, new trial, and remittitur.

{¶ 16} ACS appealed to the Tenth District Court of Appeals, setting forth

six assignments of error. Leadscope filed a conditional cross-appeal. The court of

appeals affirmed the judgment of the trial court “in all respects” and therefore

held that Leadscope’s assignment of error was moot. Am. Chem. Soc. v.

Leadscope, 10th Dist. No. 08AP-1026, 2010-Ohio-2725, ¶ 101-102. Specifically,

the Tenth District held that “the trial court did not err in denying ACS’s motion

for judgment notwithstanding the verdict on the unfair competition claim.” Id. at

¶ 45. The appellate court held that in Ohio, “malicious litigation [is] a basis for an

unfair competition claim” and that the bad faith standard, not an “objectively

baseless” standard, “is better suited to the nature of” such a claim. Id. at ¶ 29, 31.

{¶ 17} The Tenth District also held that “[t]he trial court did not err in

overruling ACS’s motion for judgment notwithstanding the verdict on

Leadscope’s counterclaim for defamation or in refusing to reduce the amount of

damages pursuant to ACS’s motion for remittitur.” Id. at ¶ 64. The appellate

court held that the trial court correctly concluded that ACS’s statements were not

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absolutely privileged and that the statements “exceed[ed] a mere statement that

the parties disputed ownership of the intellectual property incorporated in

Leadscope’s products.” Id. at ¶ 56-57. The appellate court also held that there

was “sufficient evidence upon which the jury could find by clear and convincing

evidence that ACS had published the statements in the memorandum and the

Business First article with actual malice”—that is, “ ‘with knowledge that the

statements are false or acting with reckless disregard as to their truth or falsity.’ ”

Id. at ¶ 59-61, quoting Jacobs v. Frank, 60 Ohio St.3d 111, 116, 573 N.E.2d 609

(1991). The Tenth District also held as an initial matter that “ACS never objected

to the trial court’s instruction on general damages and waived any objections to

the jury’s considering of this issue.”1 Id. at ¶ 64. Further, the appellate court held

that “the damages the jury awarded for both special and general damages were

properly supported in the noted evidence.” Id.

{¶ 18} We accepted the cause as a discretionary appeal. Am. Chem. Soc.

v. Leadscope, Inc., 126 Ohio St.3d 1615, 2010-Ohio-5101, 935 N.E.2d 854.

There are four propositions of law before us:

(1) A party has a constitutional right to petition the courts

for a redress of grievances and cannot be found liable for

“malicious litigation” or “wrongful” interference unless a lawsuit is

objectively baseless.

(2) As a matter of Ohio common law, a claim of malicious

litigation requires both the lack of an objective basis and subjective

“bad faith” or malice.

1. This determination is contrary to the evidence of ACS’s objections to proposed jury

instructions, which specifically state, “You may award general damages for these statements

* * *.” ACS’s objections and proposed instructions were filed with the trial court prior to the

issuance of the jury instructions.

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(3) A party may not be found liable for defamation, or to

have acted with actual malice, where it makes limited statements

that accurately describe a public lawsuit and that have an objective

basis in fact.

(4) Damages for defamation must be based upon harm

caused by the defamatory statements, as distinct from harm caused

by a public lawsuit or other proceeding.

(Emphasis sic.)

{¶ 19} For the reasons that follow, we uphold the appellate court’s

decision finding that the trial court did not err in denying ACS’s motion for

judgment notwithstanding the verdict on the unfair competition claim. But we

hold that when a party alleges a claim for unfair competition, the party must show

that the legal action is objectively baseless and that the opposing party had the

subjective intent to injure the party’s ability to be competitive.

{¶ 20} The jury instructions here did not meet that test, but instead

focused solely on whether ACS brought the lawsuit in good faith—that is to say,

the instructions focused on ACS’s action to harass and injure Leadscope and not

on the objective legitimacy of ACS’s claims. However, upon a thorough review

of the evidence presented by Leadscope and the evidence presented by ACS, we

find that even if the jury had been instructed on the proper standard of law, the

jury could not reasonably have made any other determination. We therefore

affirm the judgment of the court of appeals regarding Leadscope’s unfair

competition claim.

{¶ 21} We reverse the appellate court’s decision finding that the trial court

did not err in overruling ACS’s motion for judgment notwithstanding the verdict

on Leadscope’s counterclaim for defamation. We hold that when reviewed under

the totality of the circumstances and in the context of the entire publications,

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ACS’s statements in the internal memorandum and its attorney’s statements in

Business First are not defamatory as a matter of law. We further hold that a client

is vicariously liable for its attorney’s defamatory statements only if the client

authorized or ratified the statements.

ANALYSIS

I. LEADSCOPE’S UNFAIR COMPETITION CLAIM

A. The “objectively baseless” element is a necessary element to prove an

unfair competition claim by way of malicious litigation

{¶ 22} One of the most fundamental and protected rights of our judicial

system is the ability of citizens to access the courts. This right is preserved in

both the First Amendment to the United States Constitution and Article I, Section

16 to the Ohio Constitution. The First Amendment provides that “Congress shall

make no law * * * abridging * * * the right of the people * * * to petition the

Government for a redress of grievances.” Article I, Section 16 of the Ohio

Constitution reads: “All courts shall be open, and every person, for an injury

done him in his land, goods, person, or reputation, shall have remedy by due

course of law, and shall have justice administered without denial or delay.”

{¶ 23} Although the courthouse doors are open to all litigants, both the

United States Supreme Court and this court have set limitations on the right to

redress claims that are brought as a sham, to vex and annoy, or in an attempt to

interfere directly with a competitor’s business relationships. In Professional Real

Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49, 56, 113

S.Ct. 1920, 123 L.Ed.2d 611 (1993), the Supreme Court recognized this limitation

and held that the First Amendment right to access the courthouse does not extend

to sham litigation. We too have recognized the limitation to the right to seek

redress by holding: “Despite the paramount importance placed on the ability to

access the courts for redress of injuries, the right is not absolute.” Greer-Burger

v. Temesi, 116 Ohio St.3d 324, 2007-Ohio-6442, 879 N.E.2d 174, ¶ 11.

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{¶ 24} Notwithstanding the limitations on claims brought as a sham, there

was no clarity regarding what constituted “sham litigation” until Professional

Real Estate Investors. In that case, Columbia Pictures sued Professional Real

Estate Investors, Inc., “a resort hotel[,] * * * for alleged copyright infringement

through the rental of videodiscs for viewing in hotel rooms.” Professional Real

Estate Investors at 51-52. Professional Real Estate Investors “counterclaimed,

charging Columbia [Pictures] with violations of * * * the Sherman Act * * * and

various state-law infractions.” Id. at 52. Specifically, Professional Real Estate

Investors “alleged that Columbia’s copyright action was a mere sham that cloaked

underlying acts of monopolization and conspiracy to restrain trade.” Id.

{¶ 25} For the first time, the Supreme Court delineated a two-part

definition of “sham litigation”:

First, the lawsuit must be objectively baseless in the sense that no

reasonable litigant could realistically expect success on the merits.

If an objective litigant could conclude that the suit is reasonably

calculated to elicit a favorable outcome, the suit is immunized

under [E. RR. Presidents Conference v.] Noerr [Motor Freight,

Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961) (“Noerr-

Pennington Doctrine”)] and an antitrust claim premised on the

sham exception must fail. Only if challenged litigation is

objectively meritless may a court examine the litigant’s subjective

motivation. Under this second part of our definition of sham, the

court should focus on whether the baseless lawsuit conceals “an

attempt to interfere directly with the business relationships of a

competitor,” Noerr, supra, 365 U.S. at 144[, 81 S.Ct. at 533, 5

L.Ed.2d 464] (emphasis added), through the “use [of] the

governmental process—as opposed to the outcome of that

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process—as an anticompetitive weapon,” [Columbia v.] Omni

[Outdoor Advertising, Inc.], 499 U.S. [365], 380, 111 S.Ct. [1344,

113 L.Ed.2d 382 (1991)] (emphasis in original).”

(Footnote omitted.) Id. at 60-61.

{¶ 26} In crafting its definition, the Supreme Court specifically rejected “a

purely subjective definition of ‘sham.’ ” Professional Real Estate Investors, 508

U.S. at 60, 113 S.Ct. 1920, 123 L.Ed.2d 611. “Our decisions therefore establish

that the legality of objectively reasonable petitioning ‘directed toward obtaining

governmental action’ is ‘not at all affected by any anticompetitive purpose [the

actor] may have had.’ ” Id. at 59. Indeed, the court held that it has “repeatedly

reaffirmed that evidence of anticompetitive intent or purpose alone cannot

transform otherwise legitimate activity into a sham.” Id., citing Fed. Trade

Comm. v. Superior Court Trial Lawyers Assn., 493 U.S. 411, 424, 110 S.Ct. 768,

107 L.Ed.2d 851 (1990); Natl. Assn. for the Advancement of Colored People v.

Claiborne Hardware Co., 458 U.S. 886, 913-914, 102 S.Ct. 3409, 73 L.Ed.2d

1215 (1982). The court also held that “even an ‘improperly motivated’ lawsuit

may not be enjoined under the National Labor Relations Act as an unfair labor

practice unless such litigation is ‘baseless.’ ” Id., quoting Bill Johnson’s

Restaurants, Inc. v. Natl. Labor Relations Bd., 461 U.S. 731, 743-744, 103 S.Ct.

2161, 76 L.Ed.2d 277 (1983).

{¶ 27} It is clear that sham litigation “contains an indispensable objective

component” and, therefore, does not “turn[] on subjective intent alone.” Id. at 58,

59; see also Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 500,

108 S.Ct. 1931, 100 L.Ed.2d 497 (1988), fn. 4 (private unethical action that is not

genuinely aimed at procuring favorable government action is a sham as opposed

to a valid effort to influence government action); Otter Tail Power Co. v. United

States, 410 U.S. 366, 380, 93 S.Ct. 1022, 35 L.Ed.2d 359 (1973) (describing a

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sham as “evidenced by repetitive lawsuits carrying the hallmark of insubstantial

claims”). Thus, when courts are analyzing a claim for sham litigation, they must

not focus solely on a party’s subjective intent, but must also determine whether

the party’s lawsuit is objectively baseless.

{¶ 28} In Greer-Burger, 116 Ohio St.3d 324, 2007-Ohio-6442, 879

N.E.2d 174, we followed and quoted the United States Supreme Court’s definition

of “sham litigation” as set forth in Professional Real Estate Investors. Id. at ¶ 11.

In Greer-Burger, an employee had filed a sexual-harassment suit against her

employer. Id. at ¶ 2. After a trial, the jury found in favor of the employer. Id. In

turn, the employer filed suit against the employee and alleged, among other

things, malicious prosecution. Id. The employer argued that he had incurred

significant attorney fees and costs by defending against the employee’s lawsuit.

Id.

{¶ 29} In response to the employer’s lawsuit, the employee “filed a sworn-

charge affidavit with the Ohio Civil Rights Commission (“OCRC”)” and argued

that the employer’s “lawsuit was a prohibited retaliatory violation.” Id. at ¶ 3.

OCRC issued an order prohibiting the employer from proceeding with his lawsuit.

Id. at ¶ 6. The employer appealed to the trial court, which affirmed the OCRC’s

order. Id. at ¶ 7. The Eighth District affirmed as well. Id. at ¶ 8.

{¶ 30} We reversed and held, “[E]ven assuming arguendo that [the

employee] has established a prima facie case of retaliation, [the employer] must

be afforded an opportunity to show that there is an objective basis for his

lawsuit.” (Emphasis added.) Id. at ¶ 15. We further held:

[A]n employer [should have] the opportunity to demonstrate that

the suit is not objectively baseless. In determining whether the

employer’s action has an objective basis, the OCRC

administrative-law judge should review the employer’s lawsuit

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pursuant to the standard for rendering summary judgment. Thus,

an employer needs to “show[] his lawsuit raises genuine issues of

material fact.” [Bill Johnson’s, 461 U.S.] at 746, 103 S.Ct. 2161,

76 L.Ed.2d 277. If the employer satisfies this standard, the suit

does not fall under the definition of sham litigation. The suit,

therefore, shall proceed in court while the proceedings before the

OCRC shall be stayed.

Id. at ¶ 16.

{¶ 31} Based upon our own precedent and that of the Supreme Court,

courts should not focus solely on a party’s subjective intent, i.e., good or bad

faith, when analyzing an unfair competition claim by way of malicious litigation,

as the court of appeals in this case held.2

{¶ 32} In this case, the Tenth District Court of Appeals cited Henry

Gehring Co. v. McCue, 23 Ohio App. 281, 154 N.E. 171 (8th Dist.1926), as “the

seminal Ohio case adopting malicious litigation as a basis for the tort of unfair

competition.” Am. Chem. Soc., 2010-Ohio-2725, ¶ 30. This was true, however,

until our decision in Greer-Burger in December 2007, a mere two months before

the trial commenced in this case.

{¶ 33} In Henry Gehring, the plaintiff alleged that the defendant’s conduct

was “of such persistent and continuous nature as has resulted in damage to the

[plaintiff] in the production and sale of its wares at common law.” Henry

2. We recognize that the “sham litigation” definition set forth in Professional Real Estate

Investors was created within the context of federal antitrust law. However, we find its rationale to

be identical to the issue in the present case, i.e., maintaining access to the courthouse. Moreover,

applying the Professional Real Estate Investors test to lawsuits outside the context of federal

antitrust law is not a new concept for this court. See Greer-Burger v. Temesi, 116 Ohio St.3d 324,

2007-Ohio-6442, 879 N.E.2d 174. In Greer-Burger, an employer retaliation case, we first adopted

the test in Professional Real Estate Investors. Id. at ¶ 11. Therefore, the analysis in Professional

Real Estate Investors is not limited to the confines of federal antitrust law, but is applicable to

cases involving unfair competition claims based upon malicious litigation.

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Gehring at 283. The defendant argued that the allegations stated in the petition

did not constitute a cause of action in state court. Id. at 282.

{¶ 34} The Eighth District held:

There is well-established authority for the holding that the

pursuit of one competitor by another, either in court or out of court,

for the purpose of injuring him in his business, may result in

recovery under sufficient proof. There are numerous cases of

successful recoveries because of malicious acts by way of

litigation in the courts, where it appears that the litigation was not

founded upon good faith, but was instituted with the intent and

purpose of harassing and injuring a rival producing and selling the

same commodity.

Id. at 283-284.

{¶ 35} Using Henry Gehring as a guidepost, the Tenth District held that

“the bad faith standard is better suited to the nature of the malicious litigation

claim than is the ‘objectively baseless’ standard.” Am. Chem. Soc., 2010-Ohio-

2725, ¶ 31. Consequently, the Tenth District held that “the trial court properly

instructed the jury that litigation not founded in good faith, but brought for the

purpose of harassing and injuring a rival who was producing and selling the same

commodities, could support Leadscope’s unfair competition claim.” (Emphasis

added.) Id. Thus, the appellate court held that “the trial court did not err in

denying ACS’s motion for judgment notwithstanding the verdict on the unfair

competition claim * * *.” Id. at ¶ 45.

{¶ 36} We disagree with the Tenth District’s conclusion that the “bad

faith” standard is the appropriate standard for an unfair competition claim by way

of malicious litigation. In being presented with this standard, the jury was

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improperly instructed to focus solely on ACS’s subjective intent. This flawed

instruction did not direct the jury to consider whether the lawsuit was objectively

baseless, contrary to the case law on this issue under Greer-Burger and

Professional Real Estate Investors.

{¶ 37} We hold that to successfully establish an unfair competition claim

based upon legal action, a party must show that the legal action is objectively

baseless and that the opposing party had the subjective intent to injure the party’s

ability to be competitive. Here, the jury instructions were inadequate because they

did not include the “objectively baseless” element necessary to meet the two-part

test for an unfair competition claim.

{¶ 38} Even though we hold that the trial court failed to properly instruct

the jury on Leadscope’s unfair competition claim, we find it necessary to address

Leadscope’s assertion that ACS waived its claim of Noerr-Pennington immunity

because immunity is an affirmative defense that must be pleaded in an answer or

it is waived under Civ.R. 8(C) (affirmative defenses).3 ACS did not assert Noerr-

Pennington immunity by name. Leadscope argues that pursuant to Civ.R. 8(C),

ACS waived Noerr-Pennington immunity because it did not expressly raise it

until ACS filed its motion for judgment notwithstanding the verdict.4 See Civ.R.

3. Noerr-Pennington immunity is a “doctrine [that] originated in the anti-trust context as the

proposition that ‘joint efforts to influence public officials do not violate the antitrust laws even

though intended to eliminate competition. Such conduct is not illegal, either standing alone or as

part of a broader scheme itself violative of the Sherman Act.’ ” WE, Inc. v. Philadelphia, Dept. of

Licenses & Inspections, 174 F.3d 322, 326 (3d Cir.1999), quoting United Mine Workers of Am. v.

Pennington, 381 U.S. 657, 670, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965); see also Noerr, 365 U.S.

127, 81 S.Ct. 523, 5 L.Ed.2d 464. The United States Supreme Court has held, “Those who

petition government for redress are generally immune from antitrust liability.” Professional Real

Estate Investors, 508 U.S. at 56, 113 S.Ct. 1920, 123 L.Ed.2d 611. This type of immunity from

antitrust liability is otherwise known as Noerr-Pennington immunity.

4. Many courts have held that Noerr-Pennington immunity should be raised as an affirmative

defense. See Bayou Fleet, Inc. v. Alexander, 234 F.3d 852, 860 (5th Cir.2000); Acoustic Sys., Inc.

v. Wenger Corp., 207 F.3d 287 (5th Cir.2000); North Carolina Elec. Membership Corp. v.

Carolina Power & Light Co., 666 F.2d 50, 52 (4th Cir.1981). Even so, as the Fifth Circuit in

Bayou Fleet explained, the general rule of waiver does not apply when the defense is raised later

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8(C) (“a party shall set forth affirmatively * * * any other matter constituting an

avoidance or affirmative defense”).

{¶ 39} ACS counters that it did not waive Noerr-Pennington immunity,

because it argued repeatedly for a directed verdict on the unfair competition and

tortious interference claims. ACS further submits that it also argued that it was

entitled to Noerr-Pennington immunity when ACS filed its objections to the trial

court’s jury instructions on March 24, 2008. ACS argues that it is not required to

specifically use the words “Noerr Pennington” or “First Amendment” and that its

objections to the jury instructions preserved its argument for Noerr-Pennington

immunity on appeal. The second and third paragraphs of its proposed jury

instruction, it claims, invoked the Noerr-Pennington doctrine and the correct

standard of law to provide immunity on Leadscope’s unfair competition claim.

{¶ 40} The parties’ focus on the waiver issue is a red herring in this case.

Here, ACS filed a lawsuit against Leadscope. Leadscope then counterclaimed,

alleging, among other claims, unfair competition. As the counterclaimant,

Leadscope had the burden of proving its claim for unfair competition, regardless

of whether ACS did or did not plead Noerr-Pennington immunity as an

affirmative defense. In Professional Real Estate Investors, the Supreme Court

held:

[E]ven a plaintiff who defeats the defendant’s claim to

Noerr[-Pennington] immunity by demonstrating both the

objective and the subjective components of a sham must still prove

a substantive antitrust violation. Proof of a sham merely deprives

but does not result in unfair surprise or “if it is raised at a ‘pragmatically sufficient time, and the

plaintiff was not prejudiced in its ability to respond.’ ” Id. at 860, quoting Chambers v. Johnson,

197 F.3d 732, 735 (5th Cir.1999).

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the defendant of immunity; it does not relieve the plaintiff of the

obligation to establish all other elements of his claim.

Professional Real Estate Investors, 508 U.S. at 61, 113 S.Ct. 1920, 123 L.Ed.2d

611. Therefore, the burden remained on Leadscope to prove its unfair

competition claim. Noerr-Pennington immunity is a shield from liability, and

Leadscope cannot escape its burden of proving its own claim by wielding the

Noerr-Pennington doctrine as a sword.

{¶ 41} Furthermore, independent of the question of ACS’s preservation of

an affirmative defense is the question whether the trial court appropriately

instructed the jury as to the standard for finding unfair competition by way of

malicious litigation. That is the question we were asked to address when we

accepted the cause for discretionary review, and that is the question we have

answered.

B. Although the jury should have been instructed on the

“objectively baseless” standard, there is overwhelming

evidence to support the jury’s verdict against ACS

{¶ 42} Today we hold that the “objectively baseless” standard is the

correct standard for an unfair competition claim based upon malicious litigation,

and therefore, the trial court should have instructed the jury to apply that standard.

Here, the trial court improperly instructed the jury to apply a “bad faith” standard.

In affirming the use of the “bad faith” standard, the appellate court reviewed the

evidence presented to the jury and held, “The jury, as trier of fact, was entitled to

draw permissible inferences from the chronology, course, and scope of litigation

ACS undertook and to conclude ACS’s civil action constituted malicious

litigation.”

{¶ 43} We, too, find it necessary to highlight certain evidence that was

presented by ACS and Leadscope.

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January Term, 2012

1. ACS’s Evidence

{¶ 44} ACS claimed that Leadscope misappropriated PathFinder. The

jury was instructed that to constitute misappropriation, the information at issue

must be a trade secret. The jury was also instructed that a trade secret is

information that “is the subject of efforts that are reasonable under the

circumstances to maintain its secrecy.” Although ACS never expressly argued to

the jury what trade secret Leadscope allegedly took, the PathFinder source code

was the only “secret” property. Indeed, the majority of the evidence adduced by

ACS was focused on PathFinder’s source code.

{¶ 45} CAS’s President Massie had testified at deposition that “the source

code is * * * an extraordinarily important and central tangible item in the sense

that it’s reduced to some medium.” He had also testified that he was most

interested in the source code because “[t]hat is, after all, what this entire problem

is about: Who created this product?” Michael Petras, a senior engineer at ACS

and one of the code writers of PathFinder, testified that there was “no doubt” that

the source code for PathFinder was confidential.

{¶ 46} The source code was so important to ACS that it was part of its

negotiations with Leadscope before this litigation. Michael Dennis, CAS’s legal-

department manager, testified:

A. We talked about the PathFinder source code and the

entire PathFinder project, and we had conversations about how we

believed, Pete [Roche] and I, that Leadscope had the enjoyment of

the PathFinder software or source code and that as part of the

settlement or resolution of this, that Leadscope should provide CAS

with any enhancements that they had made to that software.

Q. And when you pointed out that you thought they had the

benefit of the PathFinder source code, what did these people say?

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A. They never corrected us.

Q. Did they ever deny having the PathFinder source code?

A. No. Which left us with the impression that they had

copied some form of the PathFinder software.

{¶ 47} But the jury heard testimony from ACS’s own expert that the

source codes for PathFinder and the Leadscope patent were not the same. Dr.

Sudhakar Yalamanchili testified that “he did not find any” verbatim copying of

any source code from PathFinder that was used in Leadscope. Dr. Martin Rinard,

Leadscope’s expert, confirmed Dr. Yalamanchili’s conclusion that the source

codes were not identical. He “looked at every line of source code and both source

code bases” and concluded that Leadscope’s source code was not copied from the

PathFinder source code.

{¶ 48} The source code was the only part of PathFinder that was

considered highly confidential. The functionality of PathFinder was not

proprietary information. Petras conceded that other than the source code,

documents were not subject to security procedures for the purpose of protecting

confidentiality. In fact, Petras testified that the functionality of PathFinder was

not secret and was described to the public in articles and in scientific

presentations. The functionality of the PathFinder project was disclosed to

customers through sales presentations, without the protection of nondisclosure

agreements. And Lou O’Korn, head of ACS’s research department, testified that

there were other products in the field that had the capabilities of the Leadscope

patent and PathFinder. The functionality of PathFinder was unequivocally not a

secret.

{¶ 49} ACS did not provide sufficient evidence to the jury supporting its

claim for misappropriation or that it had a patent on PathFinder. ACS’s only

secret was the source code, and expert testimony revealed that the source codes

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January Term, 2012

for PathFinder and Leadscope were not the same. The lack of sufficient evidence

of misappropriation is astonishing, especially considering the length of this trial

and the extensive nature of the discovery spanning nearly six years.

{¶ 50} But the lack of evidence is even more problematic for ACS’s

defense of Leadscope’s counterclaim alleging that ACS filed the lawsuit solely to

injure Leadscope’s competitiveness. ACS never specified any information to

support its basis for filing the lawsuit. President Massie testified that he formed a

working group to investigate the patent. However, the jury never heard testimony

about the results of the committee or how it reached its determination that

Leadscope had misappropriated the PathFinder product.

{¶ 51} Instead, there were extensive discussions out of the presence of the

jury between counsel and the judge regarding Leadscope’s motion in limine

seeking to introduce evidence of the conclusions of the working group. ACS

successfully sought its exclusion on the basis that the information was protected

by work-product and attorney-client privilege. Thus, the jury never heard

testimony on the information ACS had when it filed its lawsuit to support its

claims for misappropriation against Leadscope. This is relevant because in

defending the counterclaim involving unfair competition predicated upon legal

action, ACS was required to show that when the lawsuit was filed, it had an

objective basis and was not filed simply to injure Leadscope’s ability to be

competitive.

{¶ 52} The evidence that ACS did present to the jury failed to establish

that it possessed anything more than speculation at the time it filed its lawsuit that

PathFinder had been misappropriated by Leadscope. ACS’s own experts and

internal technical staff would not state that Leadscope had stolen ACS’s trade

secrets. Although the experts and internal technical staff identified similarities in

the patented information, no testimony established that Leadscope took ACS’s

proprietary information. Instead, ACS focused its arguments on the similarities

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between the source code and “operational flows.” ACS relied on those

similarities as proof that Leadscope misappropriated PathFinder.

{¶ 53} Dr. Yalamanchili’s testimony could not provide any insight as to

what information ACS relied upon in filing its claims against Leadscope, given

that he was not retained by ACS until 2007, five years after the lawsuit was filed.

Dr. Yalamanchili testified that the “operational flow” of the two programs was

“identical.” But Dr. Yalamanchili never clearly defined “operational flow” or

why identical “operational flows” supported ACS’s claim of misappropriation.

The jury never heard testimony from Dr. Yalamanchili or any other ACS expert

that the operational flow constituted proprietary information. Dr. Yalamanchili

even admitted he did not review any other software projects beyond PathFinder

and Leadscope’s patent to determine whether other programs had the same

operational flow.

{¶ 54} But Dr. Yalamanchili also testified that the Leadscope patent and

PathFinder were different in several ways. He testified that there was no evidence

that the PathFinder source codes were the same as Leadscope’s. Additionally, the

two programs were written in different programming languages. Dr.

Yalamanchili also testified that the algorithms of PathFinder and Leadscope were

not identical. Thus, ACS’s own expert failed to make a convincing case that

Leadscope misappropriated ACS’s intellectual property.

{¶ 55} Further damaging to its case, ACS’s own information technology

employees, such as Robert Swann, could not equivocally state that Leadscope had

misappropriated PathFinder:

Q. And you were asked your opinion regarding whether

Drs. Blower and Myatt and Mr. Johnson developed Leadscope on

their own or whether it was Chemical Abstracts’ technology?

A. On several occasions.

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January Term, 2012

Q. And in, in fact—well, what was your response to such

questions?

A. Honestly don’t know. I could not tell you if they did or

did not.

{¶ 56} President Massie also testified that ACS did not bring a lawsuit

before Leadscope filed a patent application because it could not tell what, if any,

information had been misappropriated:

Q. And if I understand correctly, your testimony earlier, it

was, you were not—that [Robert Swann] advised you we couldn’t

tell without seeing code or independent development, essentially; is

that fair to say?

A. I don’t know what you mean by “independent

development.” But I would agree with you that I said to him not

only my concerns, but there were a lot of concerns within CAS, a

lot of management was talking about this product and worrying

about whether anything was taken from us. So I did ask Mr.

Swann, what do you think, what do you people in technology think.

He said, we can’t tell from the outside whether this has our

information in it.

***

Q. In terms of what you were told at that point in time in

April—or in August of—fall of 1999, we can see the screen of the

Leadscope project in a fleeting way, perhaps at a meeting; but we

don’t know if that source code was our source code unless the guys

came over and sat down and said, here’s what we did; or if they

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had given us proof they did their work from scratch and didn’t do

our work, et cetera.

***

A. I believe that’s what I said in an explanation to you of

what do we mean we didn’t know, and I was giving you an example

of the kinds of things that, had we known, we would have a better

handle on whether that was our IP.

Q. And what you wanted to know was the source code or

proof of independent development?

A. Those are—those are very good critical examples of

what we need to know.

THE COURT: Is that what you wanted to know?

A. It’s part of what we wanted to know.

***

Q. Isn’t it fair to say as far as you were concerned the entire

problem was the source code?

A. No, it’s not.

(Emphasis added.)

{¶ 57} ACS presented a theory, but offered no concrete evidence that

Leadscope stole its product. On the testimony and evidence presented, ACS

failed to prove that it had any, let alone sufficient, evidence to support its lawsuit.

The record is replete with ACS’s speculation, surmise, and supposition, but

wholly lacking of probative evidence from which a rational jury could conclude

that misappropriation actually occurred. The jury could reasonably infer, based

on the paucity of evidence presented, that the lawsuit was objectively baseless

when filed.

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January Term, 2012

{¶ 58} Indeed, even during closing arguments, ACS’s counsel repeatedly

argued that ACS had support for its claims, but failed to identify any evidence it

relied on to support its allegation of misappropriation:

We gave you that evidence that supports the ACS claims. We

gave you that evidence in detail. * * * But for defendants to say

there is no evidentiary support and that we filed this counterclaim

with nothing—excuse me, we filed this suit in April of 2002 with

nothing to support it, it defies common sense.

Not so. We conclude that ACS failed to specify any evidence it relied upon in

filing its lawsuit. It is therefore not surprising that ACS failed to convince the

jury that Leadscope had misappropriated the PathFinder project. Leadscope, on

the other hand, presented persuasive evidence that ACS had an intent to harm its

business as its motivation in filing the lawsuit.

2. Leadscope’s Evidence

{¶ 59} Leadscope presented evidence that President Massie kept a

watchful eye on Leadscope’s progress:

Q. Let’s go to 1999. In the year 1999, did you start hearing

something about Leadscope which caused you to start having

concerns?

A. Yes. There were two things—in—in 1999. First, people

were beginning—within CAS were beginning to ask questions

about the product that they were putting out, and some uneasiness

about the product. And the other issue at the time I remember is

they were starting to hire a fair number of our staff, and that began

to raise some questions, too.

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Q. Did you begin to ask questions within your organization

about whether these defendants had taken any information that they

should not have?

A. Yes. When someone would say to me, well, we may

have a problem here, my response was, well, there’s only a problem

if they took information away, and does anybody know—does

anybody have an idea or anybody know if there’s any problem with

the product? Did they taken any of our code? Did they take any

trade secrets?

Q. Okay. In 1999, I’m still in that year, did you raise

questions with your research group on that subject?

A. Yes, I asked—I asked Mr. Swann, who was the—who

was the head of IT at the time. I think the title then was director of

IT, and Lou O’Korn who worked for him, I asked if they thought

there was a problem with this product.

Q. And what response were you getting from those

gentlemen?

***

A. They almost always said the same thing, which is, they

couldn’t tell from the outside if there was a problem with the

product.

Q. What do you mean by that?

A. They couldn’t tell by just looking—looking at the

materials, the—what was public. They couldn’t tell what was

underneath the product so they could see if anything of ours was

taken. I think they uniformly said to me, we just don’t know.

(Emphasis added.)

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January Term, 2012

{¶ 60} Lou O’Korn eventually met with the president of Leadscope, and

O’Korn “was given formal assurances” that Leadscope did not take anything from

ACS. But despite these assurances, President Massie’s monitoring of Leadscope

continued into the next year. In fact, in 2000 President Massie had a telephone

conversation with Allen Richon, president of Leadscope, during which he relayed

his concerns:

A. * * * I said to him, Allen, we have two concerns here.

I said, one is this continued unease at CAS about this

product you guys have and just a feeling this—that maybe

something was taken from us.

And I said our second concern is the hiring of CAS staff,

which we really don’t want to get out of control. * * * He said, as

to the product, I can absolutely tell you that this was developed by

our people, and there’s no intellectual property problem here at all.

I said, well, okay if that’s your assurance, I said, well, you know,

we can get on with life and maybe work together. I said, but you

need to know that’s a concern of ours.

(Emphasis added.)

{¶ 61} Yet President Massie did not “get on with life.” He still monitored

Leadscope closely. He visited its website and read its articles, although his team

continued to tell him that it did not know whether Leadscope took anything:

A. * * * This would be an ongoing thing where maybe an

article would cross my desk or someone would come into my office

and say, this—Leadscope is kind of a worry. And I—I would then

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ask Bob Swann, you know what do you think we have here and he

would say, we don’t know.

{¶ 62} When President Massie discovered that Leadscope had filed a

patent application in 2001, he “formed a separate group within Chemical

Abstracts to investigate Leadscope, the company, the patent, and also the

Leadscope product.” And, soon after the patent application, President Massie’s

concerns seemed to transmogrify into ill will.

{¶ 63} In February 2002, in an attempt to abort a visit by Governor Bob

Taft to Leadscope’s offices, President Massie sent an e-mail to Governor Taft’s

office. Governor Taft was a “personal friend” of President Massie. In his e-mail,

he wrote, according to his testimony:

Q. “* * * CAS is about to challenge Leadscope’s patent on

the ground * * * that it is based in significant part on ‘prior art’

technology, much of it developed at CAS or in existence already in

CAS products or elsewhere.

“* * *

“There are questions about what the CAS researchers did or

did not remove from CAS in terms of code * * * work product,

plans, et cetera. While I am not at this time suggesting that

anything illegal was done, CAS is reserving its rights to challenge

any aspect of Leadscope’s product suite or business activities on

these grounds.”

{¶ 64} The jury also heard testimony from ACS’s former information

technology director, Robert Swann, about President Massie’s hostility toward

Leadscope. Swann testified that President Massie seemed to take the Leadscope

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January Term, 2012

situation “very personally” and that he “raised his voice in connection with

Leadscope.” President Massie even told Swann that Blower was risking his

retirement by working with Leadscope. He also made comments about

Leadscope’s financial situation, stating that Leadscope was going through its

money.

{¶ 65} The jury heard testimony that a committee was formed by

President Massie to investigate the patent application:

A. I can absolutely guarantee you that to bring legal action or do

anything, we had to have something really substantive, and that

didn’t happen till this patent came out. And when this patent came

out, we were all in shock. I turned the patent over to the general

counsel, and then the investigation started, and that’s what

happened.

{¶ 66} Massie never testified about what happened in the committee’s

investigation. Swann testified that the allegations that Leadscope took ACS’s

trade secrets were the conjectures of President Massie. Therefore, beyond mere

assertions that the Leadscope patent “looked an awful lot like PathFinder” and

that it “was [ACS’s] patent,” President Massie offered no explanation as to how

ACS reached the conclusion that Leadscope misappropriated PathFinder. ACS

waited to take any legal action until it could review the patent. But having

reviewed it, Massie offered the jury nothing more than his own conclusion that

Leadscope misappropriated PathFinder from ACS.

{¶ 67} Once the committee results were turned over to President Massie

and the two ACS boards approved pursuing legal remedies against Leadscope,

ACS engaged in heavy-handed negotiation tactics. There was no evidence

presented to the jury that the two ACS boards reviewed the committee results, and

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the committee results were never entered into evidence for the jury’s

consideration. On April 11, 2002, CAS counsel Michael Dennis called Michael

Conley, Leadscope’s chief financial officer, demanding a meeting. If Leadscope

did not meet, it would face a complaint with “civil and criminal charges.” On

April 15, 2002, Conley met with ACS representatives, during which they

presented him with a draft complaint, including a letter with their demands. The

demands included ownership of Leadscope’s patent, a $1 million payment, and

Leadscope’s stopping all sales of products incorporating the disputed patent, in

exchange for avoiding litigation.

{¶ 68} Conley responded in an April 16, 2002 letter attempting to avoid

litigation. He informed ACS that it was in the midst of securing financing and

that “even threatening of this litigation was going to disrupt [Leadscope’s]

financing.” Conley testified, “So, again, it was—it was kind of almost a plea

from our part of, why are you doing this, and don’t go forward and do this

because this is going to really, you know, mess up our company.” After

Leadscope did not agree to ACS’s demands, ACS filed its lawsuit.

{¶ 69} Leadscope also presented evidence that ACS intended to harm it

financially by filing a lawsuit. President Massie was aware of Leadscope’s

delicate financial situation. ACS also became aware of potential investments in

Leadscope and derailed those investments.

{¶ 70} For example, Curtis Crocker, a venture capitalist with Battelle

Technology Fund, spoke with Michael Dennis at CAS about making an

investment in Leadscope and the terms under which the Leadscope founders left

Chemical Abstracts. Dennis informed Crocker that ACS had legal issues with

Leadscope. After learning about the legal issues, Crocker admitted to Dennis that

he “was uncomfortable moving forward” with his investment with Leadscope

until the issues were cleared up. Furthermore, Conley testified that he had a

conversation with Dennis that “their even threatening of this litigation was going

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January Term, 2012

to disrupt [Leadscope’s] financing.” Therefore, ACS was aware that it was

having a direct impact on Leadscope’s financing.

{¶ 71} Leadscope also presented evidence that ACS was attempting to use

the lawsuit as a way to impede Leadscope’s success and to bankrupt the company

and Dr. Blower, Dr. Myatt, and Johnson. For example, after ACS filed suit,

Leadscope struggled initially to establish its insurer’s duty to advance defense

costs. After Leadscope obtained defense via its insurance coverage, ACS

dismissed that part of the complaint upon which coverage was predicated, leaving

Leadscope without insurer-funded attorneys and coverage in the event it was held

liable.

{¶ 72} Having reviewed the foregoing and other evidence, the Tenth

District held, “Much of the evidence supported Leadscope’s claims that ACS’s

unfair competition was rooted in its alleged desire to suppress, by any means

necessary, Leadscope as a new software competitor.” Am. Chem. Soc., 2010-

Ohio-2725, ¶ 32. We agree with the appellate court’s holding inasmuch as

Leadscope, as the counterclaimant alleging unfair competition, had the burden to

present evidence to support that claim. It did just that.

{¶ 73} Having independently scoured the voluminous record for other

evidence that could support a finding favorable to ACS, we could not find the

evidence, in detail or otherwise, upon which ACS relied in bringing its lawsuit.

We find that there is no sufficient foundation from which a jury could conclude

that ACS adequately supported its claims. Therefore, we agree with the appellate

court that the jury’s verdict in favor of Leadscope should be upheld. Although the

jury’s determination was made using the “bad faith” standard, the evidence

presented was so lacking that even if the “objectively baseless” standard had been

applied, the outcome would have been the same.

{¶ 74} We reach our determination with great respect to a jury’s role in

the judicial process, but we also recognize that a court of last resort may decide

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the merits of a case when it adopts a new legal standard. That result is proper

here, given the nature of the claims presented and the fact that a decade has

elapsed since the lawsuit was filed. When an appellate court “adopts a new legal

standard * * * on * * * [some] occasions, it applies the new standard itself and

decides the merits.” Casey v. Planned Parenthood of Southeastern Pennsylvania,

14 F.3d 848, 857 (3d Cir.1994).5 And federal appellate courts have used that

approach in a wide array of cases, including antitrust claims.

{¶ 75} In MCI Communications Corp. v. Am. Tel. & Tel., 708 F.2d 1081

(7th Cir.1983), a federal antitrust case, the Seventh Circuit Court of Appeals held

that the jury instructions did not reflect the proper standard, but because “there is

insufficient evidence to support a finding of unlawful pre-announcement under

the proper legal standard, we need not remand for a new trial on this issue.” Id. at

1129, fn. 69.

{¶ 76} The Ninth Circuit has also followed this approach. In Beck v.

Upland, 527 F.3d 853, 857 (9th Cir.2008), the issue was whether the plaintiff’s

lawsuit alleging retaliatory arrest pursuant to 42 U.S.C. 1983 could go forward to

trial. “After the district court’s decision, the United States Supreme Court” issued

an opinion “clarifying the elements of a constitutional tort under § 1983 for

retaliatory arrest or prosecution.” Id. The federal court of appeals held that when

a new standard of law is decided in a case, “ ‘the better approach’ ” is to remand

so that the district court can “apply the appropriate standards.” Id. at 867, quoting

In re Exxon Valdez, 270 F.3d 1215, 1241 (9th Cir.2001). However, the court held:

[B]ecause it has already been four years since [the] arrest and three

years since this case was filed, considerations of judicial efficiency

5. Although we recognize that we first adopted the standard in Greer-Burger, which was in the

context of employee retaliation, we make clear that consistent with its origins, it applies in full for

claims of unfair competition by way of malicious litigation.

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January Term, 2012

lead us to resolve the matter today. Justice would not be served by

subjecting the parties to further pre-trial disputes over immunity

when the matter can be clearly settled on the present summary

judgment record.

Id. at 867-868.

{¶ 77} The principle of fairness requires us in this rare and limited

instance to reach this holding, and we do so with great caution and reluctance.

Here, a party, Leadscope, was not only successful in its counterclaim for unfair

competition, but was also successful in defending against a claim for

misappropriation. Because an improper standard was given, some justices would

require this successful party to retry this case, but a retrial would be costly to the

parties and judicial resources to only reaffirm what a jury properly concluded

upon our independent review of the record: ACS did not establish

misappropriation, and Leadscope established unfair competition.

II. DEFAMATION CLAIM

A. ACS is not liable for defamation because its

statements were not defamatory as a matter of law

1. The Internal Memorandum

In Ohio, defamation occurs when a publication contains a

false statement “made with some degree of fault, reflecting

injuriously on a person's reputation, or exposing a person to public

hatred, contempt, ridicule, shame or disgrace, or affecting a person

adversely in his or her trade, business or profession.”

Jackson v. Columbus, 117 Ohio St.3d 328, 2008-Ohio-1041, 883 N.E.2d 1060,

¶ 9 quoting A & B-Abell Elevator Co. v. Columbus/Cent. Ohio Bldg. & Const.

Trades Council, 73 Ohio St.3d 1, 7, 651 N.E.2d 1283 (1995).

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To establish defamation, the plaintiff must show (1) that a

false statement of fact was made, (2) that the statement was

defamatory, (3) that the statement was published, (4) that the

plaintiff suffered injury as a proximate result of the publication, and

(5) that the defendant acted with the requisite degree of fault in

publishing the statement.

Pollock v. Rashid, 117 Ohio App.3d 361, 368, 690 N.E.2d 903 (1996).

{¶ 78} “[I]t is for the court to decide as a matter of law whether certain

statements alleged to be defamatory are actionable or not.” Yeager v. Local

Union 20, Teamsters, Chauffeurs, Warehousemen & Helpers of Am., 6 Ohio St.3d

369, 372, 453 N.E.2d 666 (1983).

{¶ 79} “In determining whether a statement is defamatory as a matter of

law, a court must review * * * the totality of the circumstances” and by “read[ing]

the statement[] * * * in the context of the entire [publication] to determine

whether a [reasonable] reader would interpret [it] as defamatory.” Mann v.

Cincinnati Enquirer, 1st Dist. No. C-09074, 2010-Ohio-3963, ¶ 12, citing Scott v.

News-Herald, 25 Ohio St.3d 243, 253, 496 N.E.2d 699 (1986), and Mendise v.

Plain Dealer Publishing Co., 69 Ohio App.3d 721, 726, 591 N.E.2d 789 (1990).

[T]he words of the publication should not be considered in

isolation, but rather within the context of the entire [publication]

and the thoughts that the [publication] through its structural

implications and connotations is calculated to convey to the reader

to whom it is addressed.

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January Term, 2012

Connaughton v. Harte Hanks Communications, Inc., 842 F.2d 825, 840 (6th

Cir.1988), aff’d, 491 U.S. 657, 109 S.Ct. 2678, 105 L.Ed.2d 562 (1989).

{¶ 80} Reading ACS’s statements made in the internal memorandum in

context, we readily conclude that they are not defamatory as a matter of law. The

internal memorandum was simply a directive to all employees from CAS’s legal

administration manager not to speak about the litigation. It was understandable

and reasonable for the legal administration manager to disseminate an internal

memorandum regarding an important legal matter to employees. In order for the

directive to be effective, the litigation had to be described in sufficient detail.

Considering the memorandum as a whole and considering the fact that the

statements in the memorandum were almost a verbatim recitation of the

allegations in the complaint, we hold that the statements are not defamatory and

are not actionable.

2. The Business First Article

{¶ 81} Business First, a newspaper serving the corporate community,

reported on the filing of the ACS lawsuit and the allegations made by ACS. The

article, entitled “LeadScope, its founders sued by former employer,” contained a

balanced report of both parties’ arguments and defenses. The alleged defamatory

statements made by ACS’s outside counsel in the article pertained to ACS’s intent

in filing the lawsuit: “Our motivation in filing suit is to acquire back the

protected information that they took from us.”

{¶ 82} Business First gave the parties an opportunity to comment on the

case and, in fact, both parties took advantage of that opportunity. The first

sentence of the article states that ACS is “alleging [that Leadscope and its

founders] used proprietary information to form and operate their business.” Thus,

a reasonable reader would understand that ACS’s counsel’s statements were a

quick summary of the case and ACS’s allegations.

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{¶ 83} For its part, Leadscope stated that the lawsuit “has no merit.” The

article also contained extrajudicial statements by Leadscope’s counsel that “[t]he

timing of this lawsuit speaks volumes as to its invalidity” and Leadscope’s

intention to file a counterclaim. Leadscope’s counsel stated that even though

ACS had been aware of the fact that “Leadscope ha[d] been working up its new

products for about four or five years [and] ha[d] acquired about $10 million in

venture capital,” ACS did not “utter[] a peep for four or five years.”

{¶ 84} From the views presented in the article, the average reader would

learn that the suit had been filed and could easily understand the gist of the claims

and defenses from the brief quotes that the parties provided regarding their

opinions about the lawsuit.

{¶ 85} Moreover, the lawsuit was not under seal, and the complaint was

available to the public. The public has a legitimate, constitutionally protected

interest in judicial proceedings, and the article provided information to educate

and inform the public about the case.

{¶ 86} Considering the article as a whole and the fact that the article

contained a true and accurate summary of the legal proceedings at the time, we

hold that the statements in the article are, as a matter of law, not defamatory.

Thus, we must reverse the judgment of the court of appeals to the extent it held

otherwise.

{¶ 87} Even though we hold that the statements published in Business

First are not defamatory as a matter of law, we must also address the significance

of the fact that ACS was held liable for statements made by its outside counsel to

the media. Client liability for an attorney’s statements is an issue of first

impression for this court.

{¶ 88} Although we have not confronted the discrete issue here, courts

outside of Ohio have done so. The better reasoned opinions hold that a client may

be vicariously liable for its attorney’s torts only if the client authorized or ratified

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the conduct. See, e.g., Givens v. Mullikin, 75 S.W.3d 383, 394-396 (Tenn.2002)

(an insurer and an insured may be held vicariously liable for the tortious acts or

omissions of an attorney hired to defend the insured if the attorney’s tortious

actions were directed, commanded, or knowingly authorized by the insurer or by

the insured); Chisler v. Randall, 124 Kan. 278, 259 P. 687, 690 (Kan.1927) (“The

client is not responsible for unauthorized defamatory communications made by

his attorney”); Green Acres Trust v. London, 142 Ariz. 12, 18-19, 688 P.2d 658,

(Ariz.App.1983), vacated in part on other grounds, 141 Ariz. 609, 688 P.2d 617

(1984) (a client was not liable for defamation when there was an absence of any

evidence of either authorization or ratification of the attorneys’ statements);

Arigno v. Murzin, Conn.Super.Ct. No. CV960474102S, 2001 WL 1265404, *9

(Oct. 2, 2001) (a client was vicariously liable for an attorney’s statements that

went beyond reading charges against the opposing party because the client

apparently authorized the statements).

{¶ 89} We agree. Based on the foregoing authority, we hold that a client

is vicariously liable for its attorney’s defamatory statements only if the client

authorized or ratified the statements. To hold otherwise would wreak havoc on

the bench and bar, as well as clients.

{¶ 90} We make clear that Ohio law imposes no blanket prohibition on an

attorney’s communications to the media. Attorneys and their clients retain a

panoply of First Amendment rights and are free to speak to the public about their

claims and defenses provided that they do not exceed the contours of protected

speech and ethical rules that impose reasonable and necessary limitations on

attorneys’ extrajudicial statements. See Prof.Cond.R. 3.6 (“A lawyer who is

participating or has participated in the investigation or litigation of a matter shall

not make an extrajudicial statement that the lawyer knows or reasonably should

know will be disseminated by means of public communication and will have a

substantial likelihood of materially prejudicing an adjudicative proceeding in the

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matter”). Thus, while we do not muzzle an attorney representing a party in a

proceeding, attorneys are not given carte blanche to defame others under the guise

of litigation.

{¶ 91} In this case, the jury was given only an instruction on the law of

defamation. It was not instructed to determine whether ACS was vicariously

liable for its attorney’s statements. And there was no evidence before the jury

that ACS had endorsed or ratified its counsel’s statements. Thus, the verdict

against ACS could not stand even if its attorney’s statements could be held to be

defamatory. We caution trial courts that, in the future, they must instruct the jury

regarding client authorization or ratification in cases in which claims for

defamation are predicated on extrajudicial statements made by the client’s

attorney.

B. Damages

{¶ 92} Because we hold today that ACS’s statements in the internal

memorandum and Business First were not defamatory as a matter of law, we

reverse the judgment of the appellate court that upheld the jury’s verdict and the

jury’s award of damages on the defamation claim.

III. CONCLUSION

{¶ 93} Because we hold that the appropriate standard for an unfair

competition claim predicated upon malicious litigation is the two-part test set

forth by the Supreme Court in Professional Real Estate Investors, we hold that the

trial court and court of appeals applied the wrong standard in deciding whether

ACS brought its claims in good faith. The United States Constitution and the

Ohio Constitution do not necessarily preclude claims grounded simply in bad

faith. What is precluded are lawsuits that are objectively baseless and filed with

the subjective intent to injure the party’s ability to be competitive.

{¶ 94} In this case, the evidence presented by Leadscope overwhelmingly

supported the jury’s verdict on Leadscope’s unfair competition counterclaim.

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Meanwhile, ACS’s misappropriation claim was completely devoid of evidence

that would have supported its claim for misappropriation. Leadscope’s vast

evidence, coupled with ACS’s lack of support for its claim, compels us to hold

that even if the jury had been instructed properly, the result would be the same.

We therefore affirm the portions of the judgment in favor of defendant Leadscope

on the misappropriation claim and in favor of the counterclaimant Leadscope on

its counterclaim.

{¶ 95} Finally, we hold that ACS’s statements in the internal

memorandum and its attorney’s statements in Business First are not defamatory as

a matter of law. We also hold that a client is vicariously liable for its attorney’s

defamatory statements only if the client authorized or ratified the statements.

Therefore, we reverse that part of the judgment of the appellate court that upheld

the jury’s verdict and the jury’s award of damages on defamation.

{¶ 96} The cause is remanded to the trial court with orders to vacate its

judgment for Leadscope on the issue of defamation.

Judgment affirmed in part

and reversed in part,

and cause remanded.

LANZINGER and MCGEE BROWN, JJ., concur.

PFEIFER, J., concurs in part one of the judgment and dissents in all other

respects.

LUNDBERG STRATTON and O’DONNELL, JJ., concur in all syllabus

paragraphs and in part two of the judgment and the portion of the opinion relating

thereto, and dissent as to part one of the judgment.

CUPP, J., concurs in paragraph one of the syllabus and dissents in all other

respects.

__________________

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PFEIFER, J., concurring in part and dissenting in part.

{¶ 97} I concur in the majority’s judgment affirming the appellate court’s

judgment on appellees’ unfair-competition claims. I do not concur in the

majority’s determination that a legal action must be objectively baseless to form

the foundation of an unfair-competition claim based upon malicious litigation.

Further, I dissent from the entirety of the majority’s holding regarding the

appellees’ defamation claims and would affirm the judgment of the court of

appeals on those claims.

I

Defamation

{¶ 98} The jury carefully considered five separate alleged instances of

defamation. Jurors decided that two of those statements were defamatory, that the

American Chemical Society (“ACS”) had made those statements with malice, and

that defendants had suffered damages. The majority seeks to thwart the jury’s

verdict by imposing its own verdict.

Publicity as a Weapon

{¶ 99} On April 11, 2002, Michael Dennis, the senior lawyer at Chemical

Abstract Service (“CAS”), called Michael Conley, Leadscope’s chief financial

officer, requesting a meeting—a meeting at which ACS would eventually demand

Leadscope’s patent and $1 million. Dennis threatened to bring “both [a] civil and

criminal complaint” and “fast and furious publicity” if Leadscope refused to meet

with ACS. When Leadscope did not accede to ACS’s settlement demands, ACS

unleashed its destructive, two-pronged strategy—litigation and publicity. The

publicity proved the more devastating.

{¶ 100} A jury spent weeks hearing testimony about Leadscope’s path

from innovation to devastation. The jury found that, by far, Leadscope had been

harmed the most by the publication of defamatory statements made by ACS. The

verdicts and interrogatories are attached to this opinion as an appendix. Even

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though the jury found that Leadscope had proven claims for tortious interference

and unfair competition, nearly 70 percent of the damages awarded by the jury to

Leadscope were attributable to the defamatory statements of ACS. For the

individual plaintiffs, the jury found that as far as general damages were

concerned, Blower, Johnson, and Myatt suffered damages equally from the unfair

competition and the defamation.

{¶ 101} It should be no surprise that ACS’s comments about Leadscope

and its founders, especially to the particular audiences it chose, were devastating.

ACS, a venerable institution chartered by Congress, the world’s largest scientific

society with over 164,000 members and self-described as “one of the world’s

leading sources of authoritative scientific information,” accused three of its

former employees of stealing technology from CAS. The jury, like ACS, realized

the import of that type of accusation. That purveyor of “authoritative scientific

information” announced to the 1,900 employees of ACS—employees who were

colleagues, competitors, and potential customers of Leadscope and its founders—

that Leadscope and its founders had “sought and received a patent for technology

indistinguishable from a project on which they worked while employees of the

Society’s Chemical Abstracts Service” and that ACS would act “to protect its

intellectual property and proprietary information.” ACS then admonished the

1,900 people that it just notified of the lawsuit to not comment upon it to anyone

else.

{¶ 102} Ten days later, ACS ignored its own advice and spoke, through its

attorney, to Columbus’s Business First, a business-oriented newspaper. To a

reporter from the business newspaper of Leadscope’s home town, a town where

Leadscope had been attempting to raise capital, ACS essentially said that

Leadscope’s central product was stolen from ACS.

{¶ 103} ACS, “one of the world’s leading sources of authoritative

scientific information,” announced to an audience that included the scientific

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world and the financial world that virtually everything that Leadscope was built

upon was stolen. A few words to the right audience can be ruinous. And the jury

determined that those words were ruinous to Leadscope, Blower, Johnson, and

Myatt. The majority has not demonstrated why those jury verdicts should not

stand.

Legal Standard

{¶ 104} The law on defamation is not complicated. As the majority

relates, defamation occurs when a publication contains a false statement made

with some degree of fault that reflects injuriously on a person’s reputation or

affects a person adversely in his trade, business, or profession. Jackson v.

Columbus, 117 Ohio St.3d 328, 2008-Ohio-1041, 883 N.E.2d 1060, ¶ 9. The

majority, however, finds that the statements made by ACS are not defamatory,

despite the fact that the claims of Leadscope and the individual defendants were

not wanting as to any element necessary to prove defamation. And the majority

does not assert that any privilege applies to ACS. In both instances—the

employee memorandum and the Business First article—the statements made by

ACS were false, were made with the knowledge that they were false, injured the

reputations of Leadscope and the individual defendants, and adversely affected

them in their business.

A

Business First Article

{¶ 105} The jury awarded damages based on a statement from ACS’s

counsel in the May 11, 2002 edition of Business First. The statement reads, “Our

motivation in filing suit is to acquire back the protected information that they took

from us.” ACS’s counsel demonstrated no equivocation. He did not claim to be

quoting the complaint. He said that the defendants had taken protected

information from ACS. That statement was false, ACS knew it was false, and it

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injured Leadscope and the individual defendants. The majority concocts novel

legal theories to save ACS from the jury’s verdict.

1. ACS Is Not a Newspaper

{¶ 106} The majority cites four cases involving newspapers as defendants

in support of its statement that a court must review the statement at issue under

the totality of the circumstances and within context: Mann v. Cincinnati

Enquirer, 1st Dist. No. C-09074, 2010-Ohio-3963, ¶ 12, citing Scott v. News-

Herald, 25 Ohio St.3d 243, 253, 496 N.E.2d 699 (1986); Mendise v. Plain Dealer

Publishing Co., 69 Ohio App.3d 721, 726, 591 N.E.2d 789 (1990); and

Connaughton v. Harte Hanks Communications, Inc., 842 F.2d 825, 840 (6th

Cir.1988), aff’d 491 U.S. 657, 109 S.Ct. 2678, 105 L.Ed.2d 562 (1989). Those

cases actually say that the court must look to the entire “article”—the majority

substitutes the word “publication”—to determine whether the statements at issue

are defamatory. That is, when a newspaper is being sued for statements appearing

in an article, the court should look at everything the newspaper published in the

article in determining whether the statements at issue were defamatory. The

newspaper, when it is being sued, gets credit for its attempt to balance the

allegedly defamatory statements with other material. In discussing context, the

court in Scott said:

To evaluate an article’s broader context we must examine

the type of article and its placement in the newspaper and how

those factors would influence the reader’s viewpoint on the

question of fact or opinion.

Scott v. News-Herald at 253. ACS was not making editorial decisions. It was

simply making defamatory statements.

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{¶ 107} The majority cites newspaper cases that simply do not apply to

ACS. For instance, the majority quotes Connaughton as saying, “[T]he words of

the publication should not be considered in isolation, but rather within the context

of the entire [publication] and the thoughts that the [publication] through its

structural implications and connotations is calculated to convey to the reader to

whom it is addressed.” Id. at 840.

{¶ 108} When one views that quote as part of the entire sentence as it

appeared in Connaughton, it is clear that the case is discussing the newspaper’s

entire process in putting a story to print:

Other factors to be scrutinized are conversations between

the editor and/or other management personnel with reporters, or

the author of the article, concerning the research and development

of a controversial story; decisions and reasons relating to selective

interviews and selective investigations; the manner of

implementing interviews; the importance and veracity of

information relied upon in developing the article, always mindful

of the caveat that the words of the publication should not be

considered in isolation, but rather within the context of the entire

article and the thoughts that the article through its structural

implications and connotations is calculated to convey to the reader

to whom it is addressed.

Id. at 840.

{¶ 109} Business First is not being sued here. If it were, Business First

would get credit for the “balanced report of both parties’ arguments and defenses”

that the majority claims Business First gave. ACS, on the other hand, is

responsible for its lawyer’s words. Business First reported what ACS’s counsel

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said; ACS does not get the benefit of the nonparty newspaper’s attempt at writing

a balanced story.

2. The Defamed Party’s Opportunity to Deny the Defamatory Statement

Does Not Make the Statement Nondefamatory

{¶ 110} The majority states that the Business First article “contained a

balanced report of both parties’ arguments and defenses.” The majority excuses

ACS’s defamatory statement because it was balanced by Leadscope’s assertion in

the article that the lawsuit “has no merit.” This is a novel approach to defamation

law–if the victim denies the defamatory statement, the defamer is shielded from

liability because the statement is not defamatory. Does the majority really mean

that?

{¶ 111} It may be the case that the chance to publicly deny the veracity of

a defamatory statement might affect the amount of damages a plaintiff may

recover. But the opportunity to defend one’s good name cannot mean that the

defamatory statement itself was not defamatory. It just cannot.

3. A Statement About Litigation Is Qualifiedly Privileged

{¶ 112} Parties to a lawsuit are protected from claims of defamation

related to discussions about that lawsuit—but it is a qualified privilege. This

privilege is codified at R.C. 2317.05 and provides that a “fair and impartial

report” of the allegations made in a lawsuit is protected by a qualified privilege

that can be overcome by a showing of actual malice. The fact that a statement

accurately reports the contents of litigation does not render the statement “not

defamatory”—it only entitles the speaker to a qualified privilege, which can be

overcome by a showing of actual malice.

{¶ 113} The jury was instructed that ACS’s comments in Business First

were qualifiedly privileged in this case. The jury was also instructed that actual

malice occurs “when the [declarant] makes a false statement either with

knowledge that it is false or with reckless disregard of whether it is false or not.”

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{¶ 114} The jury found that ACS, through its counsel, had made with

actual malice the statement alleging that defendants had stolen something from

ACS. That was enough to overcome the privilege that applies to statements

regarding litigation in Ohio.

4. Client Authorization or Ratification

{¶ 115} The majority’s discussion of a client’s vicarious liability for the

statements of its attorney is superfluous, given its holding that the statements

made by ACS’s attorneys were not defamatory. That discussion is also

superfluous because it has nothing to do with this case. ACS makes no claim that

it had not authorized or ratified the statements of its attorney in the Business First

article. Instead, it attempted to persuade this court in its briefing that the

statements were fair commentary on the lawsuit, that the “statements at issue

* * * stay well within the allegations made in the complaint, and it is in fact

difficult to envision an ‘accurate summary of the allegations’ that would be more

restrained.” Can we not presume that ACS ratified or authorized the statements in

the complaint? Should this court reverse a $15 million verdict on a theory not

raised by the appellant at trial or on appeal, a theory that would have been

dismissed by the jury out of hand?

{¶ 116} Ohio attorneys would have nothing to fear from a holding in favor

of appellees. Attorneys should note well that they may speak out about a pending

lawsuit with no threat of liability as long as they do not make a false statement

either with knowledge that it is false or with reckless disregard of whether it is

false or not. They retain an absolute privilege for whatever they file or say in

court, Willitzer v. McCloud, 6 Ohio St.3d 447, 448-449, 453 N.E.2d 693 (1983),

but they cannot expect to avoid liability for lying in public just because they first

have lied in a complaint.

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B

Memorandum to Employees

{¶ 117} ACS’s memorandum to all its employees regarding the litigation

was the second basis upon which the jury found that ACS had defamed the

defendants. The memorandum (which reads more like a press release) was sent to

approximately 1,900 employees around the globe, including Europe and Asia,

including employees having nothing to do with the case. It read:

Re: Communication re: Legal Matter

The nonprofit American Chemical Society has filed a legal

complaint against Leadscope, Inc., and its founders, who sought

and received a patent for technology indistinguishable from a

project on which they worked while employees of the Society’s

Chemical Abstracts Service in the mid-1990s.

The Society is a leader in publishing scientific journals and

databases that are indispensable to chemists around the globe, and

is acting to protect its intellectual property and proprietary

information.

Staff members are not authorized to comment on this

matter. It is important that you refrain from communicating and/or

commenting about this subject to any individual while the legal

process is being pursued.

(Emphasis added.)

{¶ 118} ACS, which had threatened “fast and furious publicity,” released

this memo to people in the same industry as defendants, alleging that defendants

had sought their patent fraudulently. The statement that Leadscope and its

founders had “received a patent for technology indistinguishable from a project

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on which they worked while employees of the Society’s Chemical Abstracts

Service” was false, ACS knew it was false, and it injured Leadscope and the

individual defendants.

{¶ 119} The majority goes along with the fiction that “[t]he internal

memorandum was simply a directive to all employees from ACS’s counsel to not

speak about the litigation.” Could it instead have been an effort to get as many

people in the industry talking about the lawsuit as possible?

{¶ 120} Regardless, the majority states that “[c]onsidering the

memorandum as a whole and considering the fact that the statements in the

memorandum were almost a verbatim recitation of the allegations in the

complaint, we hold that the statements are not defamatory.” Majority opinion at

¶ 80. To the contrary, a consideration of the memorandum as a whole does

nothing but lead to a conclusion that the memorandum is defamatory. Nothing in

the remainder of the memorandum softens the salvo from the opening paragraph

that defendants’ product’s technology was indistinguishable from that of a project

they worked on at CAS. There is nothing saying “we allege” or “we think”—the

reader is led to believe that ACS has compared the guts of the two projects and

found they were identical, that ACS’s only option is to go to war because of what

it has found. The jury determined that was not true.

{¶ 121} That the memorandum went to employees and involved litigation

was relevant, but not determinative. Again, ACS enjoyed a qualified privilege for

the statements made in the memorandum. But a falsehood contained in a legal

complaint when repeated outside of that complaint does not enjoy an absolute

privilege.

{¶ 122} This jury found that ACS had acted with actual malice in the

publication of the employee memorandum. Again, the majority ignores the jury’s

determination.

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C

Conclusion on Defamation

{¶ 123} ACS levied the most serious accusation that can be brought

against an inventor: you stole your invention. For the majority to determine that

those words are not defamatory is unfathomable. This is not an instance where a

court has been asked to determine whether a statement is simply rhetoric, satire,

or hyperbole and thus not defamatory. There is no way to paint the comments at

issue in this case as anything other than defamatory. There is no privilege

extensive enough to protect ACS from liability for those statements. The

statements were well chosen, well timed, and well placed by ACS to achieve their

maximum effect. Leadscope and its founders were profoundly damaged. But

ACS pays no price for its defamatory statements because they were more or less

reflective of statements contained in its complaint. The majority excuses ACS for

its published lies to the scientific community and financial community because it

had first lied to a federal court. Such is the reasoning when a result goes in search

of a justification.

II

Unfair Competition Based upon Malicious Litigation

{¶ 124} I concur in the majority’s holding that the appellees proved their

case for unfair competition based upon malicious litigation even under the

standard of law that the majority says should have been in place in this case. I do

not concur with the majority that under Ohio law, the Noerr-Pennington doctrine

establishes the elements of a claim for unfair competition based upon malicious

litigation. See E. RR. Presidents Conference v. Noerr Motor Freight, Inc., 365

U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961), and United Mine Workers of Am. v.

Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965).

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A

Unfair Competition

{¶ 125} First, I would hold that this court need not even address ACS’s

appeal regarding malicious litigation. The individual defendants and Leadscope

alleged that ACS had engaged in unfair competition through three means:

malicious litigation, circulation of false statements and rumors about the

defendants, and false disparagement of individual defendants. The jury returned a

general verdict against ACS in favor of all the defendants; a jury interrogatory

asked on which grounds the jury had found for the defendants on the unfair

competition issue. The jury answered that ACS had engaged in unfair

competition in each of the three separate ways the defendants had alleged. In the

award of damages for the unfair-competition claims, there was no breakdown as

to how much the jury awarded under each theory.

Two-Issue Rule

{¶ 126} This court in Water Mgt., Inc. v. Stayanchi, 15 Ohio St.3d 83, 85,

472 N.E.2d 715, 717 (1984), recognized that “[t]he concept of unfair competition

may also extend to unfair commercial practices such as malicious litigation,

circulation of false rumors, or publication of statements, all designed to harm the

business of another.” This court cited Henry Gehring Co. v. McCue, 23 Ohio

App. 281, 283-284, 154 N.E. 171 (8th Dist.1926) in support of that statement.

The majority opinion addresses only the malicious litigation aspect of the

defendants’ unfair-competition claims; it does not address the claims and jury

verdicts for the defendants that were based upon circulation of false statements

and rumors about defendants or false disparagement of individual defendants.

The trial court provided separate instructions for those claims, and the jury made

discrete findings as to each and recorded those findings in its answer to an

interrogatory.

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{¶ 127} Due to the two-issue rule, there is no need for this court to even

address the malicious-litigation portion of defendants’ unfair-competition claims.

Under the two-issue rule, if there is a general verdict and more than one theory of

liability, the verdict stands if one of the theories of liability was tried without

error:

This rule as generally applied is that, where there are two causes of

action, or two defenses, thereby raising separate and distinct issues,

and a general verdict has been returned, and the mental processes

of the jury have not been tested by special interrogatories to

indicate which of the issues was resolved in favor of the successful

party, it will be presumed that all issues were so determined; and

that, where a single determinative issue has been tried free from

error, error in presenting another issue will be disregarded.

H.E. Culbertson Co. v. Warden, 123 Ohio St. 297, 303, 175 N.E. 205 (1931).

{¶ 128} Here, we do not even have two separate causes of action; instead,

the jury was presented with three ways it could find that ACS had engaged in

unfair competition. The jury found in favor of the defendants on three variations

of the same tort. That an error was alleged as to one of those theories is irrelevant

under the two-issue rule. According to the jury, ACS was liable to the defendants

for unfair competition. The general damages verdict on unfair competition was

not tested by interrogatories. Even if the malicious-litigation aspect of

defendants’ claim were reversed, the general verdict remains, supported by the

remaining findings of unfair competition. The jury verdict on unfair competition

should therefore stand regardless of this court’s decision on the malicious-

litigation issue.

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B

Malicious Litigation

1. ACS Waived Noerr-Pennington Immunity and Thus Any Requirement

That the Defendants Prove ACS’s Claims Were “Objectively Baseless”

{¶ 129} The majority opinion states that in this case, “the jury instructions

were inadequate because they did not include the ‘objectively baseless’ element

necessary to meet the two-part test for an unfair competition claim.” But no Ohio

case has ever required that the litigation brought by a malicious-litigation

defendant be “objectively baseless.” See, e.g., Henry Gehring Co. v. McCue, 23

Ohio App. at 283-284, 154 N.E. 171; Harco Corp. v. Corrpro Cos., Inc., 9th Dist.

No. 1465, 1986 WL 12338, *3 (Oct. 29, 1986); Microsoft Corp. v. Action

Software, 136 F.Supp.2d 735, 739 (N.D.Ohio 2001). The majority’s statement

about a “two-part test for an unfair competition claim” demonstrates a

fundamental misunderstanding.

{¶ 130} As the majority relates, those magic words—“objectively

baseless”—come from Professional Real Estate Investors, Inc. v. Columbia

Pictures Industries, Inc. (“PREI”), 508 U.S. 49, 113 S.Ct. 1920, 123 L.Ed.2d 611

(1993), a case applying the Noerr-Pennington Doctrine. PREI, however, does not

establish a two-part test for malicious prosecution. Rather, it establishes a two-

part test for defeating a claim of Noerr-Pennington immunity. “[T]he Noerr-

Pennington doctrine, as it has evolved, is an affirmative defense which exempts

from anti-trust liability any petitioning activity designed to influence legislative

bodies or governmental agencies.” North Carolina Elec. Membership Corp. v.

Carolina Power & Light Co., 666 F.2d 50, 52 (4th Cir.1981). ACS seeks to

extend Noerr-Pennington immunity in this case to make it immune from liability

for filing suit against the defendants.

{¶ 131} PREI establishes that a party claiming immunity may still be

liable if the suit at issue constituted “sham litigation.” Under PREI, litigation

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cannot be deprived of immunity as a sham unless it is objectively baseless. PREI

at 60.

{¶ 132} Parties claiming immunity from liability pursuant to the Noerr-

Pennington Doctrine must raise that alleged immunity as an affirmative defense.

Bayou Fleet, Inc. v. Alexander, 234 F.3d 852, 860 (5th Cir.2000). Once the

malicious-litigation defendant “assert[s] Noerr-Pennington as an affirmative

defense, [the plaintiff] ‘has the burden of proving that its [opponent’s] conduct

was a sham.’ IGEN Internatl., Inc. v. Roche Diagnostics GmbH, 335 F.3d 303,

312 (4th Cir.2003), quoting Hosp. Bldg. Co. v. Trustees of Rex Hosp., 791 F.2d

288, 293 (4th Cir.1986).” However, ACS never asserted that it had Noerr-

Pennington immunity from liability in this action. Thus, defendants were under

no burden to establish that ACS’s claims constituted sham litigation under PREI.

{¶ 133} Since Noerr-Pennington immunity is an affirmative defense, ACS

was bound by Civ.R. 8(C) (affirmative defenses) to plead it in a responsive

pleading. Of course, it did no such thing. It waived the defense; ACS did not

even mention objective baselessness or the Noerr-Pennington Doctrine until its

motion for judgment notwithstanding the verdict, two weeks after the conclusion

of the trial. Now, after ignoring PREI, a United States Supreme Court case

decided nearly a decade before this litigation started, ACS wants to retroactively

make it control this case.

2. The Noerr-Pennington Doctrine Is Not a Part of

Ohio Unfair-Competition Law

{¶ 134} What ACS failed to assert as an affirmative defense—Noerr-

Pennington immunity—it now seeks to shoehorn in as necessary proof of a claim

for unfair competition. ACS was thus left to claim to this court that objective

baselessness has always been a part of malicious-litigation law in Ohio.

{¶ 135} But it has never been a part of malicious-litigation law in Ohio.

Greer-Burger v. Temesi, 116 Ohio St.3d 324, 2007-Ohio-6442, 879 N.E.2d 174,

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is by no means an unfair-competition case and is inapposite. In Greer-Burger, at

paragraph two of the syllabus, this court applied the sham litigation analysis from

PREI to determine that the government, specifically the Ohio Civil Rights

Commission (“OCRC”), could not prevent an employer from suing an employee

over damages the employer suffered from the employee’s unsuccessful

discrimination claim. In Greer-Burger, the employer was prevented by an order

of the OCRC from even bringing his claim; he was actually denied access to the

courthouse. Id. at ¶ 16. ACS, on the other hand, has not been prevented from

seeking redress against the defendants. It had its day in court. It wants something

completely different—to be held harmless for any damage it may have caused

defendants by bringing its claims.

{¶ 136} The test for sham litigation in PREI arises once a party claims

immunity from liability. It is not a part of a test for malicious litigation. That is

why ACS never raised it below. That is why we should not apply it in this case.

C

Conclusion on Unfair Competition Based upon Malicious Litigation

{¶ 137} Although I do not agree with the majority that PREI, a case not

raised by ACS until after the conclusion of the trial, controls the law in Ohio on

unfair competition based upon malicious litigation, I do agree with the majority

that defendants proved that ACS’s claims were objectively baseless under that

standard and that the jury verdicts on appellees’ unfair-competition claims should

stand. Thus, I concur in the majority’s decision affirming the judgment of the

court of appeals on appellees’ unfair-competition claims.

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LUNDBERG STRATTON, J., concurring in part and dissenting in part.

{¶ 138} I concur in the majority’s holding that defines the proper tests for

unfair competition and defamation and in the majority’s holding that the actions

of American Chemical Society (“ACS”) were not defamatory as a matter of law.

I dissent only because I would remand the unfair-competition claim of Leadscope,

Inc., for a new trial, as opposed to deciding that issue in this court. Therefore, I

respectfully concur in part and dissent in part.

{¶ 139} The trial court provided the jurors the following instruction

regarding Leadscope’s unfair-competition claim: “In Ohio, unfair competition

may consist of malicious acts by way of litigation that is not founded in good

faith, but is for the purpose of harassing and injuring a rival producing and selling

the same commodities.” The jury returned a verdict in favor of Leadscope on its

unfair-competition claim, and the court of appeals affirmed.

{¶ 140} We hold that the trial court’s jury instructions pertaining to

Leadscope’s unfair-competition claim “were inadequate because they did not

include the ‘objectively baseless’ element necessary to meet the two-part test for

an unfair competition claim.” However, rather than remanding the cause for a

new trial for a jury to apply the correct instructions, the majority reviews the

evidence and affirms the judgment of the court of appeals after finding that

Leadscope would prevail on its unfair-competition claim against ACS under the

new instructions.

{¶ 141} “[I]t is a fundamental tenet of jury trial procedure that the judge

decides questions of law, and the jury, as factfinder, then decides questions of

fact.” Gallagher v. Cleveland Browns Football Co., 74 Ohio St.3d 427, 436, 659

N.E.2d 1232 (1996). The jury is in the best position to judge the credibility of

witnesses because the jury “ ‘ “is best able to view witnesses and observe their

demeanor, gestures and voice inflections, and use these observations in weighing

the credibility of the proffered testimony.” ’ ” State v. Ross, 9th Dist. No.

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09CA009742, 2012-Ohio-536, ¶ 42, quoting State v. Cook, 9th Dist. No. 21185,

2003-Ohio-727, ¶ 30, quoting Giurbino v. Giurbino, 89 Ohio App.3d 646, 659,

626 N.E.2d 1017 (8th Dist.1993). “The jury alone, as the trier of fact, has the

duty to decide what weight should be given to the testimony of any expert

witness.” Kokitka v. Ford Motor Co., 73 Ohio St.3d 89, 652 N.E.2d 671 (1995),

paragraph two of the syllabus. Thus, the “weight to be given evidence and the

credibility of witnesses are jury issues.” State v. Jamison, 49 Ohio St.3d 182,

191, 552 N.E.2d 180 (1990), citing State v. DeHass, 10 Ohio St.2d 230, 227

N.E.2d 212 (1967), paragraph one of the syllabus.

{¶ 142} In rendering a verdict in favor of Leadscope regarding its unfair-

competition claim, the jury in this case considered only whether ACS acted in bad

faith. Pursuant to our holding herein, the jury should have also considered

whether ACS’s complaint alleging that Leadscope appropriated trade secrets was

objectively baseless. But it will never have that opportunity because the majority

has reached its own conclusion. In my opinion, the majority improperly reviews

and weighs the evidence, including expert testimony, presented by both ACS and

Leadscope, in concluding that there is sufficient evidence to support Leadscope’s

unfair-competition claim against ACS. I believe that the majority has usurped the

jury’s duties of weighing and determining the credibility of evidence. I would

remand this case for a new jury trial regarding Leadscope’s counterclaim for

unfair competition. As we stated in State v. Petro, 148 Ohio St. 473, 501, 76

N.E.2d 355 (1947), “[i]t is the minds of the jurors and not the minds of the judges

of an appellate court that are to be convinced.”

{¶ 143} Therefore, while I concur in the majority’s substantive holding, I

would remand this cause for a new trial on Leadscope’s unfair-competition claim.

Accordingly, I concur in part and dissent in part.

O’DONNELL, J., concurs in the foregoing opinion.

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CUPP, J., concurring in part and dissenting in part.

{¶ 144} I concur in paragraph one of the syllabus and agree that for a party

to succeed on a claim of unfair competition based on an opposing party’s filing of

a legal action, the party asserting the claim must establish both that the legal

action is objectively baseless and that the opposing party had the subjective intent

to injury the party’s ability to be competitive. I am unable to agree, however, that

the jury’s determination on this claim can be affirmed as a matter of law upon this

court’s own review of the record in our application of the correct standard. As

explained in Justice Lundberg Stratton’s separate opinion, this cause should be

remanded to the trial court for further proceedings on the unfair-competition

claim.

{¶ 145} I agree with much, but not all, of the legal analysis contained in

Justice Pfeifer’s separate opinion regarding the defamation claims. The two

allegedly defamatory occurrences specifically at issue gave rise to jury questions

as to whether the statements were indeed defamatory, and the jury’s conclusions

that they were defamatory are entitled to deference. As the appellate court stated

in affirming on the defamation claims, sufficient evidence was presented “upon

which the jury could find by clear and convincing evidence that ACS published

the statements * * * with actual malice” to overcome any privilege that attached.

Am. Chem. Soc. v. Leadscope, 10th Dist. No. 08AP-1026, 2010-Ohio-2725, ¶ 61.

I would affirm the judgment of the court of appeals as to the defamation issues.

__________________

Vorys, Sater, Seymour and Pease L.L.P., Michael G. Long, and Kimberly

Weber Herlihy; and Jenner & Block L.L.P., David W. DeBruin, Matthew S.

Hellman, Lindsay C. Harrison, and Matthew E. Price, for appellant.

Squire, Sanders & Dempsey (US) L.L.P., Alan L. Briggs, Aneca E.

Lasley, Christopher F. Haas, Pierre H. Bergeron, and Colter Paulson, for

appellees.

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Michael DeWine, Attorney General, Alexandra T. Schimmer, Solicitor

General, and David M. Lieberman, Deputy Solicitor, urging reversal for amicus

curiae state of Ohio.

Jones Day, Douglas Cole, and Mathew A. Kairis, and Linda Woggon,

urging reversal for amicus curiae Ohio Chamber of Commerce.

Bricker & Eckler and Anne Marie Sferra, urging reversal for amici curiae

Ohio Manufacturers’ Association and Ohio Council of Retail Merchants.

Eugene P. Whetzel, urging reversal for amicus curiae Ohio State bar

Association.

______________________

THE APPENDIX TO JUSTICE PFEIFER’S

CONCURRING AND DISSENTING OPINION

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