It’s not often the Supreme Court issues opinions that directly impact intellectual property issues, but just a week ago, the Court shed some light on who may sue for a false advertising claim under the Lanham Act.
In Lexmark Int’l, Inc. v. Static Control Components, Inc., Justice Scalia wrote for a unanimous Court and clarified whom may sue for a false advertising violation under §43(a) of the Lanham Act (15 U.S.C. § 1125(a)). Lexmark is a printer manufacture that produces new toner cartridges that work exclusively with its printers, and also offers refurbished cartridges. However, Lexmark attempted to crush its competition by outfitting its cartridges with a special microchip that disables the cartridges when they run out of toner, and creating a special rebate program to encourage customers to return the used cartridges to Lexmark for refurbishment and resale. Static Control reverse-engineered the mircochip, and began selling refurbished cartridges to Lexmark competitors. Lexmark sued for copyright infringement, and Static Control counterclaimed false advertising in violation of the Lanham Act. The district court dismissed Static Control’s claims for “lack of prudential standing”, and the Sixth Circuit reversed, applying a Second Circuit multifactor balancing test to establish a “reasonable interest” and allowing the Lanham Act claim.
Until this opinion, there had been a three-Circuit split on how to establish standing in § 1125(a) cases. In true Scalia fashion, the opinion is heavy on statutory interpretation and subsequently rejects the tests proposed by each Circuit to establish an entirely different one: the plaintiff’s claim must come within the “zone of interests protected by the law invoked” and that a plaintiff must: 1) allege injury to a commercial interest in reputation or sales, and 2) demonstrate that those injuries are proximately caused by violations of the statute. “Thus, a plaintiff suing under § 1125(a) ordinarily must show that its economic or reputational injury flows directly from the deception wrought by the defendant’s advertising; and that occurs when deception of consumers causes them to withhold trade from the plaintiff.”
Notably, Justice Scalia writes: “A consumer who is hoodwinked into purchasing a disappointing product may well have an injury-in-fact cognizable under Article III, but he cannot invoke the protection of the Lanham Act.” Regarding the proximate harm requirement, harm that is too remote from the defendant’s conduct is not sufficient to meet the second element of the Scalia test. “That is usually the case if the harm is purely derivative of misfortunes visited upon a third person by the defendant’s acts.” In applying the new test, the Court affirmed the Sixth Circuit and stated that Static Control had sufficiently plead a Lanham Act violation.
Now that there is a clear test on how to determine standing in Lanham Act actions, it will be interesting to see how this ruling impacts the wildly popular consumer class-action false advertising suits. Given the new “injury to a commercial interest” requirement, most consumer classes are precluded from bringing this type of action in federal court – does that mean that state courts will become inundated with these claims? Will consumer protection and state unfair competition laws yield the same sort of remedies? How, if at all, will the legislature react to this judicial verdict? How will pending false advertising class-action suits be disposed? Time will tell how courts (and consumers) react to Lexmark.