This Porridge is Just Right: Supreme Court Adopts “Zones of Interest” Standing in False Advertising Cases

BearsWhen we last posted about Lexmark v. Static Control, we expected that the Supreme Court would endorse one of the circuit court tests to determine whether Static Control, the maker of a chip that facilitates printer cartridge remanufacturing, had standing to bring a false advertising claim against Lexmark, a company that makes printers and printer cartridges but is not strictly a competitor of Static Control. The case concerned Lexmark’s statements that the remanufacturing process and Static Control’s product were illegal and infringed on Lexmark’s intellectual property.  Until now, the only unanimities in the realm of Lanham Act false advertising standing were that a plaintiff could sue a direct competitor (i.e., McDonald’s could sue Burger King for disparaging Big Macs, etc.) and that consumers cannot sue.  However, beyond direct competitors, the question of who had standing was unclear, and would produce different answers in different jurisdictions.  The circuits that had faced the issue had developed a three-way split. Some allowed only direct competitors to sue, some applied a multifactor test, and others looked to whether the plaintiff had a “reasonable interest” to protect against the false advertising.

Like a berobed Goldilocks confronted with three bowls of porridge, Justice Scalia, writing for a united Supreme Court, tossed all three, opting to make himself a fourth.

The justices found the direct competitor test too restrictive. They found the multifactor test too complex and confusing.  Unlike Goldilocks, they also rejected the third option on the grounds that the “reasonable interest” test was too untethered from the purpose of the statute.  Instead, they applied a test adapted from Administrative Procedure Act cases: using standard tools of statutory interpretation, courts must now ask whether the professed plaintiff falls within the zone of interests protected by the Lanham Act, and whether there can be a showing of proximate cause (a somewhat nebulous concept which the Court said “bars suits for alleged harm that is ‘too remote’ from the defendant’s unlawful conduct”).

In defining the “zone of interests,” the Court looked to 15 U.S.C. § 1127, where Congress expressed the intent “to protect persons engaged in [] commerce against unfair competition.”  It incorporated the common law understanding that “unfair competition” means conduct causing commercial harm, not actual competition, and decided that if a false advertisement is targeted enough that it is likely to cause a party lost sales or damage to its business reputation, then that party has standing to sue.  This test does not look to the relationship between the plaintiff and the advertiser.  Given the nature of false advertising, which can harm a business regardless of its source (mysterious motives aside, if McDonald’s ran an ad attacking Toyota, Toyota could certainly be damaged), this seems awfully reasonable.

The common sense nature of this decision will help to remove some of the uncertainty that has previously beset potential Lanham Act plaintiffs who were not direct competitors of the advertiser. There may still be disagreements around the edges, but the majority of potential plaintiffs now will have moved out of the grey area.  This case also serves as a helpful reminder that false advertising is not limited to the most immediately recognizable forms of “advertisements,” such as television spots, billboards or print ads in magazines.  False statements disparaging a product or service, including through allegations of IP infringement, can constitute false advertising even if those statements are communicated directly to potential consumers. Companies should therefore be cautious in publicizing — in any commercial context — claims that products infringe their intellectual property.

 

Topics:  False Advertising, Lexmark v Static Control Components, SCOTUS

Published In: Civil Procedure Updates, Communications & Media Updates, Intellectual Property Updates

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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