Supreme Court Resolves Circuit Split on Standing in Lanham Act False Advertising Cases

by Proskauer Rose LLP
Contact

Today, the U.S. Supreme Court resolved a circuit split on the crucial issue of who has standing to sue for false advertising under the Lanham Act. In a unanimous decision authored by Justice Scalia, the Court held that to have standing, a plaintiff simply must plead "an injury to a commercial interest in sales or business reputation proximately caused by the defendant's misrepresentations."[1]

Prior to this decision, the federal appellate courts had adopted one of three competing approaches to what often has been referred to as "prudential standing" to bring a Lanham Act false advertising suit.[2] The Third, Fifth, Eighth and Eleventh Circuits used a multi-factor test derived from an antitrust case, Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 537-45 (1983).[3] The Seventh, Ninth, and Tenth Circuits employed a categorical test, which limited standing to direct competitors.[4] 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.[5]

As we previously wrote in a March 18, 2013 client alert, Lexmark International, Inc. ("Lexmark"), a manufacturer and seller of printer cartridges, sued Static Control Components, Inc. ("Static Control"), the leading seller of certain component parts for replacement printer cartridges. Static Control counterclaimed for false advertising under the Lanham Act. The U.S. District Court for the Eastern District of Kentucky dismissed Static Control's false advertising counterclaim for lack of standing.[6] The Sixth Circuit reversed, adopting the Second Circuit's "reasonable interest" test and finding that Static Control had standing to sue under that test.[7] Then, as we wrote in a second client alert, the U.S. Supreme Court granted cert petition to resolve the three-way circuit split.[8]

The Supreme Court's opinion concluded that none of the circuits had correctly articulated the test for standing. Justice Scalia emphasized that the concept of "prudential standing" that underlay many of the appellate decisions misconceived earlier Supreme Court cases that had used that phrase. According to the Supreme Court, the circumstances are few in which a federal court properly can decline to hear a case in which a plaintiff that is an intended beneficiary of a federal statute alleges a wrong covered by that statute. Consequently, the Court declined to adopt any of the three standing tests adopted by the federal appellate courts and instead held that a plaintiff has standing to sue for false advertising under the Lanham Act if a plaintiff 's interests fall within the "zone of interests" protected by the statute, and the plaintiff properly alleges that defendant's false advertising was the proximate cause of an injury for which the statute provides redress.

Zone of Interest: Citing to the Lanham Act's goal of protecting persons from commercial injury caused by, among other things, false advertising, the Court held that, to come within the zone of interest in a Lanham Act false advertising suit, "a plaintiff must allege an injury to a commercial interest in reputation or sales." Under this test, consumers who purchased the falsely advertised product or even businesses misled by a supplier into purchasing the under-performing product do not have Lanham Act standing.[9]

Proximate Cause: The proximate cause requirement – a common element of tort causes of action – bars suit for harms that are too remote from the defendant's alleged conduct. The Supreme Court held that, to satisfy this requirement, a Lanham Act plaintiff "ordinarily must show economic or reputational injury flowing directly from the deception wrought by the defendant's advertising." This requirement is satisfied "when deception of consumers causes [consumers] to withhold trade from the plaintiff."[10] Under this standard, a non-competitor would have a harder time establishing proximate causation, but the Court noted that a Lanham Act plaintiff does not need to be a direct competitor to have standing.[11]

Applying these principles, the Court held that Static Control's claims fell within the zone of interests protected by the Lanham Act, in that Static Control's allegations of lost sales and damage to its business reputation were "precisely the sorts of commercial interests the [Lanham] Act protects."[12] The Court also held that, although Static Control and Lexmark were not direct competitors, Static Control had sufficiently alleged that its injuries were proximately caused by Lexmark's misrepresentations in two ways: first, Lexmark disparaged Static Control's business and products by asserting that Static Control's business of manufacturing replacement components for Lexmark cartridges was illegal, which caused harm to Static Control's reputation[13] and, second, because Static Control's microchips were necessary for, and had no other use than, remanufacturing Lexmark toner cartridges. Therefore, any false advertising that reduced the remanufacturers' business necessarily also injured Static Control.[14]

The Supreme Court's decision may, in the short term, increase the number of Lanham Act false advertising suits in those jurisdictions that previously barred non-competitors of the advertiser from maintaining them. The longer term impact on false advertising suits by non-competitors is more cloudy. The decision suggests that it may be quite difficult for most non-competitors to establish standing at the summary judgment phase and at trial, if not at the pleading stage. Static Control has been allowed to battle on for now and, in doing so, has provided the bar with some much needed clarity on the standing test for Lanham Act false advertising suits. Whether Static Control will ultimately succeed in this case, and how frequently other non-competitors will prevail in these suits, remains to be seen.


[1] Lexmark Intern., Inc. v. Static Control Components, Inc., No. 12-873, slip op. at 22 (U.S. Mar. 25, 2014).

[2] Id. at 5.

[3] Id.

[4] Id.

[5] Id.

[6] Static Control Components, Inc. v. Lexmark Intern., Inc., 2006 U.S. Dist. LEXIS (E.D. Ky. Sept. 28, 2006).

[7] Static Control Components, Inc. v. Lexmark Intern., Inc., 697 F.3d 387 (6th Cir. 2012).

[8] Lexmark Intern., Inc. v. Static Control Components, Inc., 81 U.S.L.W. 3414 (U.S. June 3, 2013).

[9] Lexmark Intern., Inc., No. 12-873, slip op. at 13.

[10] Id. at 15.

[11] Id. at 17-18.

[12] Id. at 19.

[13] Id. at 19-20.

[14] Id. at 20-21.

 

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.

© Proskauer Rose LLP | Attorney Advertising

Written by:

Proskauer Rose LLP
Contact
more
less

Proskauer Rose LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.