By Bryan Utter, Esq.

In its unanimous decision in Lexmark Int’l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014), the U.S. Supreme Court settled the question of how courts are to determine if a plaintiff has standing to bring a false advertising claim under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). In so doing, the Court put to rest an issue that had long divided the Circuits.

 

In the underlying case, Static Control alleged that Lexmark sent notices to third-party printer cartridge remanufacturers that damaged Static Control’s reputation and sales. Static Control manufactures microchips, which it sells to the remanufacturers, who in turn install the chips in Lexmark printer ink/toner cartridges. The microchips override Lexmark-installed hardware and software that prevent the cartridges from being reused. According to Static Control, Lexmark’s notices stated that the use of Static Control’s microchips was illegal. Id. at 1383-85.

The District Court initially dismissed Static Control’s claim for lack of “prudential standing.” Applying a standard used in the Third, Fifth, Eighth, and Eleventh Circuits, the District Court held that Static Control could not bring a claim because its injury was “too remote” and because the remanufacturers were the “more direct plaintiffs.” Id. at 1385. The 6th Circuit reversed, applying the prudential standing test used in the Second Circuit, holding that Static Control had standing because it had a “reasonable interest” in its business reputation and sales, and a “reasonable basis for believing that the interest is likely to be damaged by the alleged false advertising.” Id.

 

Certiorari was granted to determine the “appropriate analytical framework for determining a party’s standing to maintain an action for false advertising under the Lanham Act.” Id. Ultimately, the Court overruled both of the above tests, a third test used in the Seventh, Ninth, and Tenth Circuits, and the application of the doctrine of prudential standing in is entirety. Instead, the Court said, “the question this case presents is whether Static Control falls within the class of plaintiffs whom Congress has authorized to sue under §1125(a). In other words, we ask whether Static Control has a cause of action under the statute.” Id. at 1387.

 

Under the Lanham Act, as modified by the Trademark Law Revision Act of 1988, a private right of action is granted to “any person who believes that he or she is likely to be damaged by” a violation of Section 43(a). In Lexmark, the Court states that this broad grant nevertheless requires a given plaintiff to have suffered an injury to one or more interests that “fall within the zone of interests protected by the [Act].” Lexmark Int’l, Inc., 134 S. Ct. at 1388.

 

The interests protected by the Act are a party’s interest in its business reputation and its interest in present or future sales. 15 U.S.C. § 1127; Lexmark Int’l, Inc., 134 S. Ct. at 1389. Because these are both commercial interests, the act does not extend to consumer claims or claims by a business deceived by a supplier, despite the language of the Act granting a cause of action to “any person.”Lexmark Int’l., Inc., 134 S. Ct. at 1390.

 

Additionally, even if a plaintiff’s interests fall within the Lanham Act’s zone of interests, the plaintiff must demonstrate that the injuries it suffered were proximately caused by the defendant’s false advertising. In the Court’s words, the plaintiff, “ordinarily must show economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising; and that that occurs when deception of consumers causes them to withhold trade from the plaintiff.” Id. at 1391.

 

The Court held that Static Control, in its counterclaim against Lexmark, sufficiently demonstrated that it had suffered harm to interests that fell within the zone of interests protected by the Lanham Act, and that those interests flowed from Lexmark’s deceptive advertising. Id. at 1393-94.

 

In sum, Static Control had a cause of action under the Act because it alleged that Lexmark disparaged Static Control’s business reputation, which resulted in diminished sales of Static Control microchips to ink cartridge remanufacturers, the sole market for Static Control’s microchips, which resulted in harm to consumers by removing lower-cost, remanufactured printer and toner cartridges from the market, all to the benefit of Lexmark. Id. at 1394-95.

 

Following Lexmark Int’l, Inc, a plaintiff will no longer have to contend with the prudential standing doctrine in false advertising cases brought under the Lanham Act. Instead a plaintiff, “must plead (and ultimately prove) an injury to a commercial interest in sales or business reputation proximately caused by the defendant’s misrepresentations.” Id. at 1395.

 

It should be noted that false advertising claims are not the only claims that may be brought under Section 43(a). A party may also bring a claim for false affiliation. Static Control made no such claim in Lexmark Int’l, Inc. Therefore, the doctrine of prudential standing could still be held to apply to false affiliation claims brought under the Act. Nevertheless, in light of the unanimity of the Court’s decision and how thoroughly it rejected the manner in which the doctrine has been applied by the Circuits, it is difficult to see how a defendant in a false affiliation action could succeed on a motion to dismiss based on prudential standing.

 

Bryan Utter is an associate at Astrachan Gunst Thomas, P.C. where he works on matters related to intellectual property and advertising law. Bryan also helps edits The Law of Advertising, a six-volume treatise, authored by the firm, that covers the rules, laws, and regulations pertaining to advertising matters. Bryan’s bio is available at http://www.agtlawyers.com/_cms/attorneys_utter.