In a March 25, 2014 decision, the United States Supreme Court clarified what class of plaintiffs have standing to sue for false advertisement under the Lanham Act (codified at 15 U.S.C. §1125(a)).
Lexmark sells the only cartridges that work in the company’s printers. However, “remanufacturers” refurbish Lexmark cartridges in direct competition with those available from Lexmark. Lexmark began a “prebate” program, offering customers a discount on the price of cartridges if they agreed to return them to Lexmark. The cartridges were fitted with a microchip that disables the empty cartridge until Lexmark replaces it. Static Control is not a remanufacturer, but they sell the components needed to remanufacture Lexmark cartridges. Static began selling a microchip that could mimic the Lexmark microchip and enable remanufacturers to refurbish the Lexmark cartridges.
Lexmark sued Static Control under the Copyright Act of 1976 (17 U.S.C. §101 et seq.) and the Digital Millennium Copyright Act (17 U.S.C. §1201 et seq.). Static Control counter-claimed for false advertisement under the Lanham Act (15 U.S.C. §1125(a)). Specifically, Static Control claimed that: (1) Lexmark misled customers into believing they were legally bound by the terms of the “Prebate” program; and (2) that Lexmark falsely advertised to remanufacturers that it was illegal to sell refurbished Prebate cartridges.
While the District Court granted Lexmark’s motion to dismiss on the grounds that Static Control lacked “prudential” standing. The Sixth Circuit reversed, applying a different “reasonable interest” test.
While circuit courts have historically been split on the issue of standing, applying no less than three different tests, the Court found this to be a “straightforward question of statutory interpretation.”
Section 1125(a) states, in relevant part:
Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which… in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.
While the statue authorizes “any person” who believes they may be damaged to bring suit, the Court admitted that a literal interpretation of this language would be too broad. The Court then turned to the well established principles of “zone of interest” and “proximate case” to aid in the interpretation.
In assessing what plaintiffs are within the zone of interest for a false advertising claim, the Court used the purpose of the Lanham Act as a guide in holding “a plaintiff must allege an injury to a commercial interest in reputation or sales.” On the issue of proximate cause, the question was whether Static Control’s alleged harm has a sufficiently close connection to violations under §1125(a). In this case, the Court stated that “all commercial injuries from false advertising are derivative of those suffered by consumers who are deceived by the advertising” but that the “intervening step of consumer deception is not fatal to the showing of proximate cause.”
The Court held that Static Control does have standing to sue under §1125(a) because they adequately pleaded: (1) injury to their commercial interest or business reputation; and (2) this injury was proximately caused by Lexmark’s misrepresentations.