Antitrust Law Daily Wrap Up, TOP STORY—U.S. S.Ct.: Lexmark may be held liable for false statements concerning printer cartridges, (Mar 25, 2014)

By Jody Coultas, J.D.

Static Control Components, Inc.’s allegations that Lexmark International, Inc. materially misrepresented the nature, characteristics, and qualities of its laser printer toner cartridges and cartridges remanufactured using Static Control’s components adequately stated a Lanham Act claim for false advertising, the U.S. Supreme Court decided today in a unanimous decision (Lexmark International, Inc. v. Static Control Components, Inc., March 25, 2014, Scalia, A.). The Court upheld an appellate court decision that Static Control had standing to bring the Lanham Act false advertising claims.

The U.S. Court of Appeals in Cincinnati held that Static Control, which makes toner cartridge components, had standing to pursue Lanham Act false advertising claims against Lexmark, which produces laser printers and toner cartridges for its printers. Static Control was the leading manufacturer and seller of components necessary to remanufacture Lexmark printer cartridges. Lexmark sued for copyright infringement, but Static Control counterclaimed, alleging that Lexmark engaged in false or misleading advertising that caused Static Control lost sales and damage to its business reputation. The appellate court 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.

Standing analysis. In its petition for certiorari, Lexmark had asked the Court to determine whether the appropriate analytic framework for determining a party’s standing to maintain an action for false advertising under the Lanham Act is (1) the factors 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, as adopted by the Third, Fifth, Eighth, and Eleventh Circuits; (2) the categorical test, permitting suits only by an actual competitor, as employed by the Seventh, Ninth, and Tenth Circuits, or (3) a version of the more expansive ‘reasonable interest’ test, either as applied by the Sixth Circuit in the case or as applied by the Second Circuit in prior cases.

Injury to commercial interests. To state a Lanham Act’s cause of action for false advertising, a plaintiff must plead an injury to a commercial interest in sales or business reputation proximately caused by the defendant’s misrepresentations.

A statutory cause of action extends only to plaintiffs whose interests “fall within the zone of interests protected by the law invoked.” The zone-of-interests test was an appropriate tool for determining standing to assert Section 1125(a) of the Lanham Act. To come within the zone of interests in a suit for false advertising under §1125(a), a plaintiff must allege an injury to a commercial interest in reputation or sales, according to the court. A consumer who feels that he was deceived into purchasing a disappointing product by alleged false advertising does not have standing to assert such a claim.

Because the Lanham Act authorizes suit only for commercial injuries, the intervening step of consumer deception is not fatal to the showing of proximate causation required by the statute. A plaintiff suing under §1125(a) must show economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising. Deception that causes consumers to stop purchasing the plaintiff’s products satisfies that requirement, according to the court. Lexmark argued that the Court adopt a categorical test permitting only direct competitors to sue for false advertising. However, the Court held instead that a direct application of the zone-of-interests test and the proximate-cause requirement supplied the relevant limits on who may sue.

Applying the principles outlined above, the Court held that Static Control was within the class of plaintiffs whom Congress authorized to sue under §1125(a). Lost sales and damage to business reputation were precisely the sorts of commercial interests the Lanham Act protects. Static Control was not a deceived customer, but rather a competitor that was damaged by Lexmark’s false advertising. Static Control alleged that Lexmark disparaged its business and products by asserting that Static Control’s business was illegal. When a defendant harms a plaintiff’s reputation by casting aspersions on its business, the injury flows directly from the audience’s belief in the statements. Also, a party claiming reputational injury from disparagement does not have to show direct competition in order to meet the proximate cause requirement. Therefore, Static Control met the zone-of-interests test.

Proximate causation. Static Control adequately pleaded proximate causation by alleging that it designed, manufactured, and sold microchips that both (1) were necessary for, and (2) had no other use than, refurbishing Lexmark toner cartridges, according to the court. Static Control’s allegations suggest that if cartridge remanufacturers sold 10,000 fewer refurbished cartridges because of Lexmark’s false advertising, then it would follow more or less automatically that Static Control sold 10,000 fewer microchips for the same reason, without the need for any “speculative … proceedings” or “intricate, uncertain inquiries.”

The case is No. 12-873.

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

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

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