In a case likely to impact intellectual property litigation, the Supreme Court recently issued a ruling that alters the pleading standard necessary to support civil complaints filed in federal court, which governs most IP disputes. In Bell Atlantic Corp. v. Twombly, 550 U.S. ____ (2007), the Court heightened the pleading standard, requiring that a complaint recite facts sufficient to "plausibly" support the legal claims it sets forth.
The Bell Atlantic ruling stems from litigation filed in the Southern District of New York by a group of consumers against the family of Bell communications providers (formerly AT&T), alleging antitrust violations. The complaint alleges conspiracy, or an illegal agreement, to monopolize the telecommunications market. Plaintiffs set forth factual allegations of parallel conduct among the Bell providers to support its claim.
Bell moved to dismiss the complaint for failure to state a claim upon which relief can be granted. The District Court granted Bell’s motion, dismissing the complaint. In doing so, the court found allegations of parallel conduct alone insufficient to support an antitrust conspiracy claim. Plaintiffs appealed to the Second Circuit Court of Appeals.
The Second Circuit reversed, finding that the District Court used the wrong standard to review the sufficiency of plaintiff’s allegations. It held that to survive a motion to dismiss, plaintiff needed only plead facts sufficient that, if true, demonstrate that a conspiracy among defendants is possible. The Court found the complaint sufficiently pled because under some circumstances parallel conduct might be the result of a conspiracy. Bell appealed to the Supreme Court.
The Supreme Court reversed, finding the Second Circuits "possibility" standard incorrect, and introducing a "plausibility" standard instead. In doing so, the Court announced a new pleading standard that appears to apply to all civil cases.
The New Pleading Standard
Prior to this ruling, courts have construed the Federal Rules of Civil Procedure to require only that a complaint contain sufficient facts to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Conley v. Gibson, 355 U. S. 41, 47 (1957). The Conley Court held that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Id. 45-46.
Bell Atlantic rejects the Conley standard, finding instead that a plaintiff must plead facts "plausibly suggesting (not merely consistent with)" its legal claim, in this case an illegal agreement in violation of antitrust laws.
The Court criticized the Conley standard, finding that it allows wholly conclusory statements to survive motion to dismiss so long as a complaint leaves the mere possibility that a plaintiff might later establish some set of undisclosed facts to support the conclusory allegations. Taking into account the high cost of discovery, the Court found that district courts should dismiss cases where there is no "reasonably founded hope that the [discovery] process will reveal relevant evidence" to support an asserted claim.
As a result, the Court held that complaints must now contain "enough factual matter . . . to raise a reasonable expectation that discovery will reveal evidence of" the alleged wrongdoing, Plaintiffs can no longer avoid motions to dismiss by claiming a "possibility of an entitlement to relief." Instead, complaints must plead enough facts to demonstrate the "plausibility" of the claim.
The heightened standard set forth in Bell Atlantic requires plaintiffs to possess a higher quantum of factual evidence in support of its claims than was previously necessary at the outset of litigation. Whereas a plaintiff had previously only to assert facts rendering its claims "possible," now it must set forth sufficient specific facts to render its claims "plausible."
As a result, this ruling is likely to prompt an increase in motions to dismiss in federal cases including intellectual property litigation and litigants can expect to have complaints judged for factual content to a higher degree than in prior years.