Supreme Court Establishes a New Test for False Advertising Standing Under Lanham Act

On March 25, 2014, the Supreme Court issued its opinion in Lexmark International Inc. v. Static Control Components Inc., holding that a two-prong analysis comprised of the "zone-of-interests" test and a "proximate-cause" requirement applies when determining who may sue for false advertising under Section 43(a) of the Lanham Act. This holding resolved at least a three-way split among the Circuit Courts over the appropriate test for determining standing to bring such claims.

This case centers around printer cartridges for laser printers. In 2002, Lexmark sued Static Control for various copyright violations related to a microchip that Static Control sold to remanufacturers of printer cartridges, to make refurbishing of Lexmark's printer cartridges easier. Static Control counterclaimed for false advertising under the Lanham Act, alleging that Lexmark told end-users that they were legally required to return the used cartridges to Lexmark, not remanufacturers. Static Control also accused Lexmark of sending letters to remanufacturers asserting that it was illegal to both sell refurbished cartridges and to use Static Control's components to refurbish the cartridges. The lower court dismissed the counterclaim, holding that Static Control did not have standing to sue. The Sixth Circuit reversed on appeal, holding that Static Control had standing because it had a "reasonable interest" in the claim.

The Supreme Court granted certiorari because the Circuit Courts were using at least three different tests for determining standing. In its decision, the Court concluded that (1) “a statutory cause of action extends only to plaintiffs whose interests 'fall within the zone of interests protected by the law invoked'" and (2) "a statutory cause of action is limited to plaintiffs whose injuries are proximately caused by violations of the statute."

In analyzing the first prong, the Court held that, “to come within the zone of interests in a suit for false advertising under § 1125(a), a plaintiff must allege an injury to a commercial interest in reputation or sales.” As the Court noted, this means that consumers misled by false advertising do not have a cause of action under § 1125(a). On the second prong, the Court decided, “a plaintiff suing under § 1125(a) ordinarily must show economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising” and that occurs “when deception of consumers causes them to withhold trade from the plaintiff.”

In adopting this test, the Court stated that it was rejecting the "reasonable interest" test of the Second and Sixth Circuits, the "categorical" test of the Seventh, Ninth and Tenth Circuits (giving only direct competitors standing), and the "multi-factor balancing" test of the Third, Fifth, and Eleventh Circuits.

In applying the two-prong analysis to the facts of the case, the Supreme Court found that Static Control was within the class of plaintiffs who Congress authorized to sue under Section 43(a) of the Act. By setting forth a clear two-prong inquiry in this decision, the Court has brought uniformity to the issue of what constitutes the required standing to bring a false advertising case. The full text of the Court's opinion can be found here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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