A unanimous U.S. Supreme Court held Tuesday that a plaintiff may bring a false advertising claim under the Lanham Act, 15 U.S.C. § 1125(a), even where the plaintiff is not a direct competitor of the defendant. A false advertising plaintiff need only allege “injury to a commercial interest in sales or business reputation proximately caused by the defendant’s misrepresentations.” A link to the opinion in Lexmark Int’l, Inc. v. Static Control Components, Inc. is here. The Supreme Court’s holding provides a simple test to determine whether a plaintiff has standing to bring a false advertising claim, and it clarifies that a lack of competition between the parties is not necessarily a bar to standing, as it had been in some circuit courts.
The case involves Lexmark, which makes and sells laser printers that are designed to work exclusively with toner cartridges that Lexmark itself also manufactures and sells. The toner cartridges contain a microchip designed to disable the empty cartridges unless the chip is replaced by Lexmark. Static Control makes and sells toner and various cartridge components, including a microchip that mimics Lexmark’s microchip, to remanufacturers to enable them to refurbish the empty Lexmark cartridges for resale, in competition with Lexmark. Static Control is the sole supplier of this critical microchip component in the marketplace.
Lexmark sent notices to remanufacturers, advising that it was illegal to sell refurbished Lexmark labeled cartridges and illegal to use Static Control’s products to refurbish those cartridges. Lexmark then sued Static Control, asserting copyright claims. Static Control counterclaimed, alleging that Lexmark had made false or misleading representations to consumers and remanufacturers that had injured Static Control’s business reputation and diverted sales from Static Control to Lexmark. The district court dismissed Static Control’s claims, holding that Static Control lacked “prudential standing” because it was not the “alleged intended target” of Lexmark’s supposed misrepresentations. The U.S. Court of Appeals for the Sixth Circuit reversed. After considering three possible approaches used in other circuits, it applied a “reasonable interest” standard that had previously been adopted by the Second Circuit. The Sixth Circuit concluded that Static Control had standing because it had alleged a reasonable interest to be protected – i.e., its reputation and sales – and a reasonable basis to believe those interests had been harmed by Lexmark’s supposed false statements.
Writing for the Court, Justice Antonin Scalia addressed and rejected the various approaches to “prudential standing” considered by the Sixth Circuit and presented by the parties, holding that the proper inquiry focused on the statute in question: Do plaintiff’s interests fall within the “zone of interests” Congress intended the statute to protect? And were plaintiff’s injuries proximately caused by defendant’s violation of the statute? Applying this inquiry to the “relatively unique circumstances” of the case, the Court found that Counterclaim Plaintiff Static Control’s reputational and sales interests fell within the zone of interests protected under the Lanham Act, and that, because each sale diverted from the remanufacturers by Lexmark’s alleged misrepresentations “more or less automatically” meant a lost sale for Static Control, the proximate cause requirement was also satisfied. Static Control, even though not a direct competitor, had standing to sue Lexmark for false advertising.