Commercial Litigation and Arbitration

Securities — The End of Channel Stuffing

One portion of the Supreme Court's decision in Tellabs, Inc. v. Makor Issues & Rights, Ltd., 2007 U.S. LEXIS 8270 (U.S. June 21, 2007), hasn't received the attention it is due. Apart from the scienter pleading standard which the case articulates (a standard that plaintiffs will likely find more hospitable than they were anticipating), the Court embraced the defendants' argument that the plaintiffs had failed "to specify whether the channel stuffing allegedly known to [the defendant] was the illegitimate kind (e.g., writing orders for products customers had not requested) or the legitimate kind (e.g., offering customers discounts as an incentive to buy)." That distinction — with its recognition of "legitimate" channel-stuffing — would have eliminated a great deal of the channel-stuffing litigation that was settled in the first several years of this decade. Untimely for the defense; never timely for the plaintiffs.

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