U.S. Supreme Court Extends False Advertisement Standing to Non-competitors

Almost gone unnoticed, the Supreme Court in Lexmark Int’l v. Static Control Components held standing to allege false advertising claims is not limited to direct competitors.  The decision resolved a longstanding circuit split of three approaches to determining whether a plaintiff has standing to sue under the Lanham Act.

Parties

Lexmark manufactures and sells laser printers as well as toner cartridges for its laser printers.   Lexmark designs its printers to work only with its own style of cartridges. Other businesses, called remanufacturers, acquire used Lexmark toner cartridges, refurbish them, and sell them in competition with new and refurbished cartridges sold by Lexmark.  In an attempt to compete with remanufacturers, Lexmark launched a program that provided customers with discounted new toner cartridges if they agreed to return used cartridges to Lexmark.  To enforce the program, Lexmark included a microchip in the cartridge that would disable the cartridge after it ran out of toner.  In order to use the cartridge again, the microchip had to be replaced by Lexmark.

 

Static Control makes components for remanufacturers to use to refurbish used Lexmark cartridges.  Static Control developed a microchip that could mimic the microchip in Lexmark’s cartridges.  By purchasing Static Control’s microchips and using them to replace the Lexmark microchip, remanufacturers were able to refurbish and resell the used Lexmark cartridges.

Lawsuit

In 2002, Lexmark sued Static Control for copyright infringement and for violation of the Digital Millennium Copyright Act.   Static Control counterclaimed alleging violation of section 43(a) of the Lanham Act (15 U.S.C. §1125(a)

English: Lexmark logo Deutsch: Lexmark logo English: Lexmark logo Deutsch: Lexmark logo (Photo credit: Wikipedia)

) for false advertising.  Static Control alleged that Lexmark purposefully misled customers into believing that they were legally required to return the cartridges after a single use.  Static Control also alleged that Lexmark sent letters to remanufacturers falsely advising that it was illegal to sell refurbished cartridges and illegal to use Static Control’s products to refurbish those cartridges.  Lexmark motioned for summary judgment arguing Static Control lacked standing to bring its counterclaim.

The district court granted Lexmark’s motion holding that Static Control lacked standing because their alleged injury was too remote and the remanufacturers were the direct plaintiffs.  Applying a reasonable interest test, the Sixth Circuit reversed.

Supreme Court Adopts New Test

The Supreme Court surveyed the various test applied by the circuit courts. The Court rejected the reasonable interest test of the Second and Sixth Circuits as too vague and broad.   The Court rejected the bright line test applied by the Seventh, Ninth and Tenth Circuits as too restrictive because it provided that only direct competitors had standing to sue.  The Court also rejected the multifactor balancing test of the Third, Fifth, Eight and Eleventh Circuits and adopted a new test.

First the Court addressed whether the cause of action in §1125(a) extends to plaintiffs like Static Control.  The Court concluded that the statute authorizes suit by “any person who believes that he or she is likely to be damaged” by false advertising.  Thus, the Court adopted the zone of interest and proximate causation test.  A plaintiff must: (1) prove he has a commercial interest in reputation or sales and (2) show that the economic or reputational injury stemmed directly from the defendant’s false advertising. The Court concluded Static Control’s claim satisfied both the zone of interest and proximate cause requirements to pursue a claim under the Lanham Act.  The Court cautioned that Static Control cannot obtain relief without evidence of injury proximately caused by Lexmark’s alleged misrepresentation.

A Case to Watch

For over a decade, Lexmark and Static Control have spared over allegations of patent infringement, antitrust violations, copyright infringement and false advertisement.  Although the Supreme Court may have clarified that standing under the Lanham Act is not limited to direct competitors, presumably more litigation lies ahead.

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More by | Angela Foster Angela Foster , Law.com Contributor
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