On March 25, the U.S. Supreme Court clarified who has the right to assert a federal claim for false advertising. In a unanimous ruling, the Court established that one company can sue another under the Lanham Act, the federal statute which prohibits false advertising and trademark infringement, even if the companies are not direct competitors.
Lexmark, a laser printer company, sells its proprietary toner cartridges. To prevent third parties from remanufacturing competing cartridges, Lexmark developed a special microchip that disables Lexmark-brand cartridges after they run out of ink. Static Control sells parts to companies that remanufacture toner cartridges. One such part is a microchip similar to Lexmark's microchip, which enables remanufactured toner cartridges to be used in Lexmark's printers.
Lexmark sued Static Control for copyright infringement. Static Control countersued for false advertising, claiming that Lexmark had told third party remanufacturers it was illegal to sell cartridges containing Static Control's parts.
The district court dismissed Static Control's claim because it did not directly compete with Lexmark. Rather, Static Control was the supplier of remanufacturers who were Lexmark's competitors. The district court thus held that any injury it suffered resulted from its dealings with these remanufacturers. The Sixth Circuit reversed the district court's decision.
Courts have long used different tests to determine who has standing to sue under federal laws, including the Lanham Act. In its decision, the Supreme Court clarified that a plaintiff has the right to make a false advertising claim under the Lanham Act if it can establish two elements: First, it must claim that it suffered an injury "to a commercial interest in sales or business reputation." Static Control clearly satisfied this first element by alleging that its sales decreased and that its business reputation was damaged.
Second, a plaintiff is required to demonstrate that its injury was "proximately caused" by the defendant's false statements. Although this case does not involve a "classic" false advertising claim, arising from a dispute between directly competing companies, the Supreme Court held that if Lexmark's alleged statements were false, the damage Static Control claimed was no less real.
It is important to keep in mind that the Supreme Court has only given Static Control the chance to prove its case. It did not determine whether Static Control ultimately would succeed on its claim. Nevertheless, this important decision may be a reason for a company to consider making a false advertising claim even where it is not a competitor.
Read the Supreme Court's opinion in Lexmark International, Inc. v. Static Control Components, Inc., No. 12-873, here. We previously discussed this case, along with other recent case developments, here.