The U.S. Supreme Court Provides a National Standard for Who Can Sue for False Advertising Under the Lanham Act
Just last week, the United States Supreme Court provided much-needed clarification on the issue of who has standing to bring a false advertising claim under the Lanham Act, 15 U.S.C. § 1152(a). The decision, Lexmark Int'l v. Static control Components, US Supreme Court slip opinion (March 25, 2014), provides a national standard that remedies a three-way split among the circuit courts. The plaintiff in the case, Lexmark, manufactures laser printers and toner cartridges. Remanufacturers buy used cartridges from Lexmark customers, refill them and sell them back to owners of Lexmark printers. The defendant, Static Control, makes microchips and other parts used by these cartridge remanufacturers. A microchip Lexmark manufactured disabled certain discounted printer cartridges once they had been used, rendering them useless to other remanufacturers. Static Control manufactures its own microchip that allows Lexmark printer cartridges to be used with Lexmark printers, even in the presence of Lexmark’s disabling microchip.
In 2002, Lexmark brought suit against Static Control to stop the latter from selling its substitute microchips, claiming copyright infringement. Lexmark had sent letters to remanufacturers warning that if they used Static Control’s microchips to enable use of Lexmark’s printer cartridges, they would be in violation of and infringe Lexmark’s intellectual property rights. Because of such conduct, Static Control counterclaimed, alleging a variety of claims, including false advertising. Static Control argued that Lexmark’s claims caused consumers to believe incorrectly that Static Control acted unlawfully.
The U.S. District Court for the Eastern District of Kentucky found that Static Control lacked standing to bring a claim for false advertising and granted Lexmark’s motion to dismiss the counterclaim. The Sixth Circuit reversed, applying the Second Circuit’s “reasonable interest” test to determine standing, in which a plaintiff has standing if it can demonstrate: 1) a reasonable interest to be protected against the alleged false advertising; and 2) a reasonable basis for believing that the interest is likely to be damaged by the alleged false advertising. Applying this test, the Sixth Circuit found that Static Control had standing because it “alleged a cognizable interest in its business reputation and sales to remanufacturers and sufficiently alleged that th[o]se interests were harmed by Lexmark’s statements to the remanufacturers that Static Control was engaging in illegal conduct.”
In contrast to the test applied by the Sixth Circuit, the Seventh, Ninth and Tenth Circuits have applied in the past a bright line test, only allowing a plaintiff to bring a false advertising case if the plaintiff was an actual competitor with the defendant. Further, the Third, Eighth and Eleventh Circuits have previously applied the following five-factor test set forth in Associated Gen. Contractors of Cal., Inc. v. Carpenters, 459 U. S. 519 (1983): (1) the causal connection between the antitrust violation and harm to the plaintiff and whether that harm was intended to be caused; (2) the nature of the plaintiff’s alleged injury; (3) the directness or indirectness of the injury and whether the damages are speculative; (4) the potential for duplicative damages; and (5) the existence of more direct victims of the alleged antitrust violation.
The Supreme Court agreed to hear the case and unanimously resolved the split among the Circuit Courts on the issue of standing under the Lanham Act. Justice Scalia wrote the opinion. In his usual form, he zoned in on the language of the Lanham Act to the exclusion of Congressional intent to determine the standing issue, stating: “We do not ask whether in our judgment Congress should have should have authorized Static Control’s suit, but whether Congress in fact did so.”
Rejecting elements of all three district court camps, Justice Scalia crafted a new test for bringing a false advertising claim under the Lanham Act. First, a plaintiff must have interests that fall within the “zone if interests” protected by the Lanham Act. Second, the false advertising at issue must have proximately caused the plaintiff’s injuries (e.g., to sales or reputation). In the case at hand, the Supreme Court applied the two-prong test and found that Static Control had standing to bring its false advertising claim.
Significance of the Case:
The Supreme Court’s holding in Lexmark is significant because it resolves the previous split of authority on the issue of who has standing to bring a false advertising claim under the Lanham Act. Specifically, the Supreme Court’s opinion states that a defendant and a plaintiff need not be direct competitors to establish a false advertising claim under the Lanham Act. Also, the decision confirms that consumers (including purported class action plaintiffs), who allege they were misled into buying a product because of false advertising claims, do not have standing because their interests do not fall within the “zone of interests” protected under the Lanham Act. Further, the decision’s provision of a uniform, national standard for standing may discourage forum shopping in federal false advertising litigation.