Antitrust Law Daily Wrap Up, ADVERTISING NEWS: High Court asked to limit standing to assert Lanham Act false advertising claims, (Dec 4, 2013)

By Jeffrey May, J.D.

Yesterday, the U.S. Supreme Court heard argument regarding the standing requirements to pursue false advertising claims under the Lanham Act. A favored approach to standing analysis among the justices did not reveal itself during the session (Lexmark International, Inc. v. Static Control Components, Inc., Dkt. 12-873).

At issue is a decision of the U.S. Court of Appeals in Cincinnati, holding that Static Control Components, Inc., a company that made components for toner cartridges, had standing to pursue Lanham Act false advertising claims against Lexmark International, Inc., a major producer of laser printers and toner cartridges for its printers. In an August 2012 decision (697 F. 3d 387, 2012-2 Trade Cases ¶78,027), the Sixth Circuit ruled that Static Control alleged a cognizable interest in its business reputation and sales to remanufacturers and sufficiently alleged that these interests were harmed by Lexmark’s statements to the remanufacturers that Static Control was engaging in illegal conduct. The court reversed dismissal of the Lanham Act claim, but upheld dismissal of antitrust claims. Lexmark filed a petition for certiorari, and the Court granted the petition in June.

Steven B. Loy argued for petitioner Lexmark. Loy contended that the appropriate analytic framework for determining a party’s standing to maintain an action for false advertising under the Lanham Act was the test set forth in the Supreme Court’s 1983 decision in Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 1983-1 Trade Cases ¶65,226. According to the petitioner, if Lanham Act standing was assessed by reference to the AGC factors, then the district court’s dismissal of the false advertising counterclaims using that analysis should be affirmed. Standing did not extend to Static Control, according to Loy.

A number of the justices questioned Loy’s assertion that “the Lanham Act is a limited, focused statutory remedy” and that class of plaintiffs entitled to standing is narrow.

“Certainly, if you just read the words of the Lanham Act … the false advertiser shall be liable to any person who believes he or she is likely to be damaged by such an act,” said Justice Ruth Bader Ginsburg. “That legislation seems to envision a very broad standing, certainly enough to encompass the person whose product is being disparaged.”

Justice Sonia Sotomayor questioned why the Court should read into the statute “a limitation against bringing any action based on your proximate cause point when there are other remedies in this statute,” such as injunctive relief.

Loy suggested that some factors of the AGC test might not be considered when injunctive relief is sought, but he refused to admit that there should be no proximate cause analysis when injunctive relief is at issue.

Jameson R. Jones, on behalf of respondent Static Control, called for a broader approach to standing for Lanham Act false advertising plaintiffs. “This Court’s zone of interest analysis shows that parties whose goods are disparaged, either expressly or by necessary implication, must have standing to sue,” argued Jones. “The zone of interest test has the directive to courts … to think about what Congress intended to protect as part of any given statute.”

Justice Antonin Scalia expressed concern that Lanham Act plaintiffs might be able to “drag somebody into court simply because [they] are arguably within the zone of interests protected.”

Justice Elena Kagan suggested that the focus should perhaps not be on the zone of interests. “We should sensibly construe the Lanham Act in accordance with Congress’s purposes,” according to Kagan.

Under the Lanham Act, “those parties whose goodwill and commercial reputation is necessarily affected by the falsity of the statement have standing to sue, are protected by the Lanham Act and able to stop such false advertisements and able to seek recompense for the damages that are suffered,” Jones argued. “And at the heart of that are those parties whose goodwill and whose commercial services are expressly misrepresented or implicitly misrepresented by a particular false advertisement because they have a unique interest in vindicating their reputations and making the false advertisements stop.”

In rebuttal, Loy argued that the respondent’s zone interest test, under which any person whose products or services are expressly or implicitly implicated should have standing under the Lanham Act, “goes too far.”

Background. The case arises out of efforts by Lexmark to restrict the ability of remanufacturers to resell Lexmark toner cartridges for its printers. Lexmark developed microchips for toner cartridges and printers so that Lexmark printers would reject any toner cartridges not containing a matching microchip, and over time Lexmark patented certain aspects of the cartridges. Static Control identified how to replicate the cartridge microchips and sold the microchips to remanufacturers along with other parts to facilitate the repair and resale of Lexmark toner cartridges. Lexmark sued Static Control for intellectual property violations, and Static Control counterclaimed under antitrust and false advertising laws.

For purposes of its false advertising claims, Static Control alleged that Lexmark falsely informed customers that Static Control’s products infringed Lexmark’s purported intellectual property and misled Static Control customers into believing that Static Control was engaging in illegal conduct because license agreements prohibited remanufacturing Lexmark toner cartridges.

Attorneys: Steven B. Loy (Stoll, Keenon, Ogden, PLLC) for Lexmark International, Inc. Seth D. Greenstein (Constantine Cannon LLP) for Static Control Components, Inc.

Companies: Lexmark International, Inc.; Static Control Components, Inc.

News: Advertising