U.S. Supreme Court Defines Standing Test For False Advertising Claims Under the Lanham Act
The United States Supreme Court has identified a two-part analysis for determining standing for false advertising claims under the Lanham Act. Ruling unanimously in Lexmark Int’l, Inc. v. Static Control Components, Inc., __ U.S. __ (2014), the Court applied a “zone-of-interests” test and “proximate-cause” requirement and found the complaining party within the class of injured parties authorized to sue under the statute. The Court rejected a multi-factor test applied by certain circuits that had restricted standing but also bypassed a more liberal “reasonable basis” test applied in other circuits. Although how the new test will be applied remains to be seen, the likely result is an expansion of the parties capable of pleading false advertising claims under the Lanham Act.
The plaintiff, Lexmark International, Inc. (“Lexmark”), a manufacturer of laser printers and toner cartridges, brought copyright claims against defendant Static Control Components, Inc. (“Static Control”), a company that makes and sells components necessary to remanufacture Lexmark cartridges. To discourage the remanufacture market, Lexmark had introduced a Prebate program, which provided a discount to customers if they agreed to return empty cartridges to Lexmark. Lexmark inserted a microchip in the cartridge to prevent its use by a remanufacturer. Static Control developed a microchip that mimicked the Lexmark microchip, enabling remanufacturers to refurbish and resell used Lexmark cartridges.
Lexmark sued Static Control for copyright violations. Static Control asserted a counterclaim for false advertising under the Lanham Act, 29 U.S.C. §1152(a). Static Control alleged that Lexmark purposefully misled customers to believe they were legally required to return the Prebate cartridges and falsely advertised to remanufacturers that it was illegal to resell the cartridges.
Lexmark moved to dismiss the false advertising claim. Relying on a “multifactor balancing test” followed by the Third, Fifth, Eighth and Eleventh Circuits, the District Court granted Lexmark’s motion and held that Static Control lacked “prudential standing” to bring the claim.
The Sixth Circuit reversed. In recognizing that there is a circuit split when determining standing in Lanham Act claims, the Sixth Circuit applied a reasonable-interest test, also followed by the Second Circuit, and concluded that Static Control had standing to sue because there was a reasonable interest to be protected and a reasonable basis for believing the interest likely to be damaged by the alleged false advertising.
The Supreme Court affirmed but provided a different analysis, tied to its reading of the Lanham Act rather than a general “prudential standing” analysis, which the Court found inapplicable given the language of the statute. In delivering the opinion of the Court, Justice Scalia noted that “a direct application of the zone-of-interests test and the proximate cause requirement supplies the relevant limits on who may sue.” In particular, the Court held that that a plaintiff must plead “an injury to a commercial interest in reputation or sales” and “economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising.” Applying the two-part test here, the Court ultimately concluded that Static Control was entitled to a chance to prove its case.
By rejecting the standing tests previously adopted by the circuit courts, the Supreme Court’s ruling resolves the ambiguity surrounding standing for false advertising claims. Further, by allowing non-direct competitors to assert Lanham Act claims, the Court has likely broadened the pool of plaintiffs with standing to sue under the Lanham Act.
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