In an important opinion regarding standing for false advertising suits in the United States, the U.S. Supreme Court on March 25 this year ruled that Static Control Components Inc. had standing to sue Lexmark International Inc. for false advertising.
The Court’s decision in Lexmark International Inc. v. Static Control Components Inc. marks an important turning point in a long running battle for Static. It has other benefits, including effectively doing away with Circuit Court forum-shopping — a problem that had plagued defendants against false advertising claims until the ruling.
As early as 2002, printer company Lexmark had accused ink cartridge remanufacturer Static Control of selling components incorporated into the latter’s third-party replacement printer cartridges that infringed Lexmark’s intellectual property — specifically, a microchip on the cartridge that replaced Lexmark’s own, thus allowing purchasers of Static Control’s remanufactured cartridges to use them in Lexmark’s printers.
Static Control fought back with counterclaims alleging Lexmark had violated antitrust laws by forcing consumers to buy only Lexmark-brand ink. Static also accused Lexmark of falsely telling customers that Static Control’s components infringed Lexmark’s intellectual property. Each company eventually lost its respective claims against the other. However, in August 2012, the 6th Circuit revived Static Control’s false advertising counterclaim, reversing the trial court’s finding that Static Control lacked standing to bring it.
The 6th Circuit’s ruling brought to a boil an issue that had been simmering between the circuit courts for years. At the time of the 6th Circuit’s ruling, to maintain standing to bring a false advertising claim the 7th, 9th and 10th Circuits required plaintiffs to be a direct competitor of any defendant. This so-called categorical test represents a standard that Static most likely could not have met had it brought its suit in one of these districts.
In contrast, the 3rd, 5th, 8th and 11th Circuits at the time used a series of five factors — the so-called “Contractors of California test” — borrowed from federal antitrust laws to determine standing in such cases. Interestingly, the Contractors of California test was pulled directly from an opinion written in Associated Gen. Contractors of California v. Carpenters by one Samuel A. Alito Jr., now an associate justice of the U.S. Supreme Court. Alito apparently had a change of heart, however, since he signed on to the court’s most recent unanimous opinion.
The 2nd Circuit presented still a third test: that plaintiffs show a reasonable interest to be protected against the alleged false advertising and a reasonable basis for believing that the false advertising would harm their interest. The 6th Circuit adopted the 2nd Circuit’s reasonable interest test in finding that Static Control had standing in its current suit. Of the three, the reasonable interest test most favored plaintiffs. The categorical test most favored the defense.
The briefs in Lexmark Intl. v. Static Control rehearsed this circuit split anarchy, and the case could have easily gone sideways at the Supreme Court. The Court could have declined to adopt a single standing test. It could have issued a fractured set of opinions without a clear consensus. It could have adopted a single standing test but articulated the standard in a confusing way. Or it the court could have articulated a clear standing test but applied it to the facts in a way that leaves everyone baffled.
Fortunately, in rejecting all of those various tests, a unanimous Supreme Court held that to show standing to bring a false advertising claim, the plaintiff must prove that its interests fall within “the zone of interests” protected by the Lanham Act, and that the alleged injury was “proximately caused” by the violation at issue. Under this simplified zone of interest and proximate cause approach, the court made clear that Lexmark’s alleged statements about Static Control’s chips were sufficiently harmful to the latter to grant it standing in a false advertising case, even if the companies were not competitors.
The court, clearly in a helpful mood, went further. It gave several examples of situations where members of a market ecosystem that are not necessarily direct competitors can still be considered to disparage one another through advertising in the way the Lanham Act is designed to prevent.
Plaintiff’s attorneys are energized by the court’s ruling. They hope that if one of their clients is suffering as the result of false advertising, especially to the extent that it may cause them to lose sales or damage its business reputation, they can now sue anywhere. The court’s ruling has led many to conclude that we could be in for an increase in litigation by indirect competitors. Now, parties going to court over federal false advertising have one, clear standing test: They must show an injury to a commercial interest in sales or business reputation proximately caused by the defendant’s misrepresentations.
I think I can speak for my colleagues who are litigators when I say, “Print this in bold, black ink: We’ll take clarity over forum-shopping, any day of the week.”