Am. Chem. Soc'y v. Leadscope, Inc.
| Citation | 133 Ohio St.3d 366,978 N.E.2d 832 |
| Decision Date | 18 September 2012 |
| Docket Number | No. 2010–1335.,2010–1335. |
| Parties | AMERICAN CHEMICAL SOCIETY, Appellant, v. LEADSCOPE, INC., et al., Appellees. |
| Court | United States State Supreme Court of Ohio |
[Ohio St.3d 366]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 [Ohio St.3d 367]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.
Vorys, Sater, Seymour and Pease L.L.P., Michael G. Long, and Kimberly Weber Herlihy, Columbus; and Jenner & Block L.L.P., David W. DeBruin, Matthew S. Hellman, Lindsay C. Harrison, and Matthew E. Price, for appellant.
Michael DeWine, Attorney General, Alexandra T. Schimmer, Solicitor General, and David M. Lieberman, Deputy Solicitor, urging reversal for amicus curiae state of Ohio.
Squire, Sanders & Dempsey (US) L.L.P., Alan L. Briggs, Aneca E. Lasley, Columbus, Christopher F. Haas, Pierre H. Bergeron, and Colter Paulson, Cincinnati, for appellees.
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, Columbus, urging reversal for amici curiae Ohio Manufacturers' Association and Ohio Council of Retail Merchants.
Eugene P. Whetzel, Columbus, urging reversal for amicus curiae Ohio State bar Association.
{¶ 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.
{¶ 5} ACS learned in January 2001 that Leadscope had applied for a patent. When ACS discovered appellees' patent-application materials, ACS formed a [Ohio St.3d 368]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.
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 [Ohio St.3d 369]Leadscope was to close a venture-capital deal] speaks volumes as to its invalidity.”
{¶ 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 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:
[Ohio St.3d 370]Unfair competition. Count Three of defendants' counterclaim seeks damages from ACS for unfair competition by 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...
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