03.28.2014 Supreme Court Clarifies Standing For False Advertising Claims Under The Lanham Act BY: ROBERT C. VAN ARNAM & MARTIN W. HAYES
In a unanimous decision, the Supreme Court on Tuesday, in the case of Lexmark Int'l, Inc. v. Static Control Components, Inc., ___ S.Ct. ___, Case 12-873 (Mar. 25, 2014), settled an open issue regarding the relevant test for standing to sue for false advertising under the Lanham Act. The Court ruled that a plaintiff does not need to be a direct competitor of the defendant, but must allege an injury to a commercial interest (e.g., lost sales or harm to business reputation) that is proximately caused by the defendant’s false advertising.
Lexmark manufactures toner cartridges that include microchips to restrict reuse of the cartridges. Static Control, the manufacturer of component parts for the cartridges, duplicated the microchips to allow refilling and reuse of the cartridges and sold its chips to Lexmark’s competitors. Lexmark then sent advertisements directly to many of Static Control’s customers stating that the use of cartridges with Static Control’s microchips infringed Lexmark’s patents. Static Control brought suit alleging false advertising by Lexmark.
In its ruling, the Court expressly rejected three other tests put forth by the Circuit Courts: (i) the vague “reasonable interest” test followed by the Second and Sixth Circuits; (ii) the narrow “direct competitor” test followed by the Seventh, Ninth, and Tenth Circuits; and (iii) the multi-factor balancing test borrowed from antitrust law followed by the Third, Fifth, Eighth, and Eleventh Circuits.
The Court created a new test that requires a party to allege an injury that is within the “zone of interests” of the Lanham Act, which includes economic (i.e., lost sales) or reputational injury. That injury must flow directly from (i.e., be “proximately caused” by) the alleged false advertising, which typically involves a consumer withholding business from the plaintiff.
This case is important because it potentially opens the door to allow a wider range of businesses to sue and be sued for false advertising. For example, a party no longer needs to be a direct competitor to sue for false advertising, and a non-competitor in the supply chain (such as component manufacturers, suppliers, etc.) may sue if its injury is within the “zone of interests” of the Lanham Act and is “proximately caused” by the false advertising.