False Advertising: Supreme Court to Decide Who Can Sue

The Supreme Court has recently agreed to hear argument in Lexmark v. Static Control that will strike at the very heart of false advertising jurisprudence by asking who is allowed to bring false advertising claims.  The Lanham Act states that such claims may be brought “by any person who believes that he or she is or is likely to be damaged by” an alleged misrepresentation “in commercial advertising or promotion.”  Courts have varied in interpreting that language to determine exactly who is an appropriate plaintiff.

Summary of Claims Giving Rise to Dispute

This case was brought over a decade ago by Lexmark International, a manufacturer of printers and toner cartridges designed to be exclusively compatible with one another.  Lexmark’s grievances arose out of toner cartridge “remanufacture,” through which empty toner cartridges are collected, refilled, and sold back to the consumer.  Lexmark remanufactures some of its own cartridges, but has taken great pains to try to make that process impossible for others.  Other remanufacturers, however, found ways to remanufacture its cartridges, and directly competed with Lexmark in the market for them.  Lexmark and the remanufacturers involved in this case eventually settled the claims between them.

The case has continued, however, and caught the Supreme Court’s eye, because Lexmark’s primary target was Static Control Components, Inc.  Static Control does not compete in the toner cartridge market, but rather manufactures technology necessary to the remanufacturing process, including parts specifically designed to facilitate the remanufacture of Lexmark cartridges.  It then supplies that technology to remanufacturers.

Lexmark’s claims included patent infringement relating to part of its cartridge design, and copyright infringement relating to computer code in a microchip therein.

False Advertising Counterclaims

When Lexmark began to inform remanufacturers (Static Control’s consumers) that the technology Static Control provided was infringing and illegal, Static Control returned fire with, among other things, a false advertising counterclaim under the Lanham Act.  Static Control contended that Lexmark’s allegations of infringement were damaging to its reputation and business.

District Court Applies Antitrust Factors and Finds No Standing

The District Court for the Eastern District of Kentucky dismissed the false advertising claims because Static Control lacked standing.   The court reached that conclusion by applying a multi-factor test that the Supreme Court has used to determine antitrust standing.

Sixth Circuit Declines to Adopt Factors and Finds Standing Based on Reasonable Interest

Static Control appealed to the Sixth Circuit which, applying a more permissive standard, found that Static Control did have standing, because it had a reasonable interest that it sought to protect against likely damage by the false advertising.

Both the multi-factor test and the “reasonable interest” test have been applied by multiple circuits.  In opposing certiorari, Static Control tried to downplay the difference between those tests—and the circuit split which Lexmark bemoaned—by arguing that the factors merely guide a court in deciding whether a party has a reasonable interest.

The More Restrictive Categorical Test

Even if those two tests can be conflated, however, there is also a third, more restrictive standard that other circuits have adopted: the categorical test, which holds that only an actual competitor can bring a false advertising claim.  Under that test, Static Control, which sells neither printers nor toner cartridges, would not be able to bring a false advertising claim against Lexmark.

Hopefully the Supreme Court’s involvement in this matter will benefit future prospective plaintiffs and defendants by lending certainty and uniformity to this otherwise inconsistent area of false advertising law.

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