The IP Law Blog Focusing on legal trends in data security, cloud computing, data privacy, and anything E

Plausibility – Is It The New Pleading Standard In Federal Courts?

Posted in Cyberspace Law

By Scott Cameron

Intellectual property law is governed by an assortment of federal laws and also several state laws. Trademarks, trade dress, copyrights, patents, and antitrust are all protected by federal statutes and a complaint alleging a violation of these rights can usually be filed in or removed to federal court. Therefore, intellectual law practitioners are generally accustomed to litigating in federal court. Among other aspects of federal practice, IP litigators are usually familiar with the well known “notice pleading” requirement for a federal complaint. 

 

Under the notice pleading standard, a complaint will not be dismissed for failure to state a claim so long as it puts the defendant on notice of the gravamen of the plaintiff’s complaint and includes the “short and plain statement of the claim showing that the pleader is entitled to relief” called for in Rule 8 of the Federal Rules of Civil Procedure. Detailed factual allegations are not required to survive a challenge to the complaint. The U.S. Supreme Court set out the pleading requirement decades ago in a case that has been almost universally cited ever since. In Conley v. Gibson, 355 U.S. 41 (1957), the Court laid down what it termed “the accepted rule 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.” Federal courts have applied that standard for 50 years to refuse to dismiss complaints containing only the barest of allegations.    

 

In May of 2007, however, things began to change. The Supreme Court revisited the pleading standard in Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007). Twombly was an antitrust case alleging that local telephone exchange carriers entered into a conspiracy both to prevent competitive entry into local telephone and Internet service markets and to avoid competing with each other in their respective markets. The district court dismissed the complaint, finding that the complaint failed to state a claim of antitrust conspiracy by alleging only parallel conduct. The Second Circuit reversed, holding that the district court applied the wrong standard. The Supreme Court granted certiorari and agreed with the district court, holding that the complaint failed to satisfy the pleading standard. The Court stated that in order to plead a claim for antitrust conspiracy, a complaint must allege facts “plausibly suggesting (not merely consistent with) agreement.” The Court also offered the following line which may just replace the famous quote from Conley: “a plaintiff’s obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a mere formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level.” The Court required that the entitlement to relief be at least plausible.

 

The Supreme Court seemed to make an effort to limit the impact on its holding. First, it couched its holding in terms of “what a plaintiff must plead in order to state a [Sherman Act] Section 1 claim.” It supported its holding by pointing out that antitrust discovery is unusually expensive. At first, it was not clear whether the decision could be used beyond the antitrust complaint. However, federal appellate and district courts have not hesitated to apply this new pleading standard to all variety of cases, not just those alleging antitrust violations. For example, the Ninth Circuit has applied the Twombly plausibility standard in Williston Basin Interstate Pipeline Co. v. An Exclusive Gas Storage Leasehold & Easement, 524 F.3d 1090, 1094 (9th Cir. 2008) (Natural Gas Act, 15 U.S.C. § 717); Williams ex rel. Tabiu v. Gerber Prods. Co., 523 F.3d 934, 938 (9th Cir. 2008) (Cal. Unfair Competition Act, Bus. & Prof. Code § 17200); Alvarez v. Hill, 518 F.3d 1152, 1157 (9th Cir. 2008) (Religious Land Use and Institutionalized Persons Act of 2000, 42 U.S.C. § 2000cc-1); SFPP, L.P. v. Union Pac. R. Co., 2008 WL 1776473, at *1 (9th Cir. Apr. 18, 2008) (Pipeline Safety Improvement Act of 2002, 49 U.S.C. § 60101); and Weber v. Dep’t Veterans Affairs, 521 F.3d 1061, 1066 (9th Cir. 2008) (Administrative Procedures Act, 5 U.S.C. § 701). District courts within the Ninth Circuit have followed its lead and applied Twombly to Rule 12(b)(6) motions to dismiss regardless of the type of complaint.

 

The Supreme Court also said it wasn’t really changing the pleading standard. In fact, it said the Conley “no set of facts” quote was never actually a pleading standard at all. Rather, it noted the Conley Court had already found sufficient facts to state a claim for relief, but that aspect of the decision has routinely been ignored by courts applying its “no set of facts” standard. The Court said that “after puzzling the profession for 50 years, this famous observation has earned its retirement. The phrase is best forgotten as an incomplete, negative gloss on an accepted pleading standard: once a claim has been adequately stated, it may be supported by showing any set of facts consistent with the allegations in the complaint.” So in the Court’s view, rather than Conley setting a pleading standard, courts have simply misunderstood the decision for over 50 years. 

Whether this plausibility standard is truly a new pleading standard, or as the Supreme Court hints, a correction to the way the prior standard was supposed to be interpreted all along, it is clear that Twombly has changed the landscape in federal pleading practice. While a plaintiff need not plead all the facts that support his claim, “a mere formulaic recitation of the elements of a cause of action will not do.” A plaintiff now must plead enough facts that, if true, would establish that the plaintiff’s claim is at least plausible, rather than merely legally and factually possible. 

 

This shift, whether the Supreme Court intended it or not, has clearly impacted the lower courts. In fact, in just over a year since the decision was published, it has been cited over 22,700 times, including over 9,200 court decisions, 12,500 trial court memoranda and appellate briefs, and 350 law review articles. The standard seems to have made courts less reluctant to dismiss complaints for failure to state a claim, and required more work and specificity on the part of plaintiff’s lawyers drafting complaints. Perhaps this will eliminate, or at least reduce, the first round of discovery often needed to determine just what the complaint is alleging. Maybe, just maybe, this will help to speed up the litigation process and get cases to trial sooner and more economically.