Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Wednesday, February 17, 2010

Iqbal, Twombly, and the Expected Cost of False Positive Errors

Posted by D. Daniel Sokol

Max Huffman Indiana University School of Law -- Indianapolis and Mark Anderson University of Idaho - College of Law have written on Iqbal, Twombly, and the Expected Cost of False Positive Errors.

ABSTRACT: The Twombly/Iqbal plausibility standard is rooted in a concern that allowing a plaintiff to proceed to discovery creates a possibility that a defendant facing a non-meritorious claim will settle rather than endure the burdens of discovery. Such settlements create so-called “false positives,” since a plaintiff recovers a remedy to which it is not entitled. False positives reflect a wealth transfer from an innocent defendant to an undeserving plaintiff. They also induce parties to order their affairs to avoid innocent behavior that might give rise to false positives in the future. This over-deterrence results in harm to parties who never end up in court, and has external social costs where the over-deterred party’s conduct is beneficial. The relevant question is not absolute cost, but the expected cost of false positive error. The expected cost of false positives depends also on their likelihood.
Likelihood turns on the burdensomeness of discovery in a particular context. Non- burdensome discovery does not produce a great incentive to settle. Burdensomeness depends on the nature of the contested facts. Facts that are uniquely in the hands of the defendants threaten a substantial burden. Contested facts available both to the plaintiff and the defendant threaten a much lesser burden. Whether facts are uniquely in the hands of the defendant varies depending on the particular element of a substantive claim in controversy.

Section II analyzes the change in the pleading standard that occurred in Twombly and Iqbal. Section III examines the rationale for the Twombly/Iqbal plausibility standard and its relationship to the various types of facts that can be put in controversy by different types of elements of substantive claims. This examination produces the conclusion that applying the Twombly/Iqbal standard requires separately analyzing the likelihood of false positives raised by each element of a substantive claim. Section IV undertakes this analysis in the context of antitrust claims under Sections One and Two of the Sherman Act. The subsections of Section IV identify an element of a Sherman Act claim, analyze the nature of facts relevant to the element and explain how the plausibility standard should apply to facts of that nature. In Section V we test decided cases for their adherence to the expected cost of false positive error approach. We conclude in Section VI with the suggestion that a similar element-by-element analysis is necessary for each substantive field of federal civil litigation.

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