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For example, many intellectual property attorneys send in terrorem letters, which threaten litigation absent compliance with the written request, to persons that are violating their clients' trademark rights before resorting to court proceedings.
In terrorem clauses (referred to in English as No-contest clauses) are also used in wills to keep beneficiaries from contesting the will by either completely disinheriting them from any share, or reducing their share to a nominal amount. These clauses are not uniformly recognized. In some states, in terrorem clauses are disfavored, but can still be enforceable. In New York, for example, the Estates Powers & Trust Law codifies the use of, and the limits of, in terrorem clauses in EPTL 3-3.5(b).
The term was used in the 2007 U.S. Supreme Court decision Bell Atlantic Corp. v. Twombly, which stated: "The requirement of allegations suggesting an agreement serves the practical purpose of preventing a plaintiff with "'a largely groundless claim'" from "'tak[ing] up the time of a number of other people, with the right to do so representing an in terrorem increment of the settlement value'" (quoting Blue Chip Stamps v. Manor Drug Stores). In other words, the Court worried that the threat of an expensive lawsuit (that was ultimately groundless) would nevertheless encourage settlements, and thus payments by innocent defendants, particularly in the case of antitrust lawsuits, which have a long and very expensive discovery process.
As the court alluded to in Twombly, the costs associated with discovery often underlay the economic calculus which may motivate the settlement of a in terrorem strike suit. The Private Securities Litigation Reform Act of 1995 created a heightened pleading standard for cases involving violations of securities regulation in the United States in response to perceptions of abuse in this area. This increased particularity is a departure from the "notice pleading" standard enumerated in the Federal Rules of Civil Procedure which would otherwise apply.
In terrorem has also been referred to by the High Court of Australia in the 2012 case of Andrews v Australia and New Zealand Banking Group Ltd. The unanimous judgement referred to the term when describing the doctrine of penalties and its operation in the case of unfair fees levied by large banks against their customers.
- 39 N.Y. Jur. 2d Decedents' Estates § 878
- H.R. Rep. No. 104-369, at 41 (1995) (Conf. Rep.), reprinted in 1995 U.S.C.C.A.N. 730.
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