Narrowing the Great Divide: Standing in False Advertising Claims Under the Lanham Act
A case that started in 2002 came to a head this past March when the Supreme Court decided to resolve a circuit split on the crucial issue of who has standing to sue for false advertising under the Lanham Act. In Lexmark International, Inc. v. Static Control Components, Inc., the court was confronted with three different standing tests applied by the Circuit courts to Lanham Act false advertising claims.
The solution to the madness? A brand new test.
It all started with laser printers and cartridges. Lexmark, a known manufacturer and seller of laser printers, designed their merchandise to work only with their own toner cartridges. The company took steps to ensure that customers returned used cartridges to Lexmark for refurbishment and resale, creating a “Prebate” program that included the insertion of a microchip that would disable the cartridge once it ran out of toner. Static Control, who does not make or remanufacture toner cartridges, and so is not a direct competitor to Lexmark, makes and sells the components necessary to remanufacture Lexmark cartridges. This includes making and selling a microchip that could mimic the one in Lexmark cartridges. Lexmark was not impressed and sued for copyright infringement.
Static Control counterclaimed that under the Lanham Act, Lexmark purposefully misled end-users to believe that they were legally bound by Prebate terms to return spent cartridges to Lexmark. They also claimed that Lexmark sent letters to most of the remanufacturers falsely stating that Static Control was engaging in illegal conduct and that it was illegal for remanufacturers “to use Static Control products to refurbish” Lexmark cartridges. Finally, Static Control alleged that it lost sales and suffered injury to its reputation as a result of the allegedly false statements.
The Lanham Act implies, but doesn’t directly say, that not everyone has the right to sue (what’s called “standing”) for violations; instead, it requires some sort of competitive injury. Due to the ambiguities of the statutory language, the appellate courts used one of three tests in order to grant that standing for a Lanham Act false advertising suit. The “antitrust” test, used by the Third, Fifth, Eighth and Eleventh Circuits, got Static Control’s claims dismissed for lack of standing. The Seventh, Ninth, and Tenth Circuits employed a categorical test, which limited standing to direct competitors. Finally, the Second Circuit applied a “reasonable interest” approach, adopted by the Sixth Circuit in this case, which requires a plaintiff to show it has a reasonable interest to be protected and a reasonable basis for believing that the alleged false advertising is likely to cause it injury.
In an opinion delivered by Justice Scalia, the Court unanimously decided that none of the circuit courts had articulated the test for standing and declined to adopt any of the three previous tests. Instead, the Court created a new one. Now, under the new test, a plaintiff has standing to sue for false advertising under the Lanham Act if their interests fall within the “zone of interests” protected by the statute, and the plaintiff’s injuries are “proximately caused” by the false representation. Broken down, “a plaintiff must allege an injury to a commercial interest in reputation or sales” in order to come within the zone of interest, and the proximate cause requirement bars suit for harms that are too remote from the defendant’s alleged conduct.
Applying the new principles, the Supreme Court affirmed the decision of the Sixth Circuit, stating that Static Control’s claims fell within the zone of interests protected by the Lanham Act and thus have been given a chance to provide evidence of the injury from Lexmark’s alleged misrepresentations. This new rule has dismissed the overly narrow tests for standing and laid down a test that is a clearer version of the one adopted by the second and sixth circuits. Only time will tell if Static Control will reign as victor, but for the time being, the company, along with Lexmark, has assisted in creating a landmark in legal history.