A federal court in Illinois had dismissed the lawsuit, concluding the allegations were too vague and did not raise a "strong inference" that the company intended to deceive shareholders.
The "strong inference" requirement was laid out in a law adopted by Congress in 1995 designed to discourage frivolous securities fraud suits by making it easier for companies to get them thrown out of court.
The Tellabs lawsuit was subsequently reinstated by a U.S. appeals court. The Supreme Court, by an 8-1 vote, ruled the appeals court was wrong, with the majority opinion written by Justice Ruth Bader Ginsburg.
She said that to qualify as strong, an inference must be more than merely plausible or reasonable. It must be cogent and at least as compelling as any opposing inference of nonfraudulent intent, Justice Ginsburg said.
Tellabs had argued that under the 1995 reform law, federal courts must consider any facts that suggest any possible "innocent" motives, and that courts have to dismiss securities fraud cases that don't raise a "strong inference" of intentional wrongdoing.
Tellabs was supported by the U.S. Securities and Exchange Commission and the Justice Department.
Lawyers for the investor plaintiffs had argued that their lawsuit laid out enough specific facts to show that Tellabs knew its best-selling product, a piece of networking equipment known as a cross-connect system, was in decline, but misled investors anyway.
Justice John Paul Stevens dissented, saying he thought it clear that the plaintiffs established probable cause to believe that Mr. Notebaert acted with the required intent.
