On March 25, 2014, the Supreme Court resolved a circuit split by declining to adopt any of the three tests applied by the courts of appeal to determine standing under the Lanham Act. Lexmark Int'l, Inc. v. Static Control Components, Inc., No. 12–873, 2014 U.S. LEXIS 2214 (March 25, 2014).
Lexmark manufactures and sells laser printers. It designs its printers to work with only its own cartridges. Other businesses, called remanufacturers, acquire used Lexmark toner cartridges, refurbish them and sell them in competition with cartridges sold by Lexmark. To prevent them from refilling Lexmark cartridges, Lexmark included a microchip in each cartridge that would disable the cartridge after it ran out of toner; for the cartridge to be used again, the microchip would have to be replaced by Lexmark. Static Control developed a microchip that could mimic the microchip in Lexmark's cartridges, and sold the microchip to remanufacturers to enable them to refurbish and resell used Lexmark cartridges.
Lexmark sued Static Control for copyright infringement. Static Control counterclaimed for unfair competition under the Lanham Act based on letters Lexmark sent to remanufacturers falsely advising them it was illegal to refurbish cartridges using Static microchips.
The district court granted Lexmark's motion to dismiss for lack of standing, applying a multifactor test. The Sixth Circuit reversed, applying a "reasonable interest" approach. In the Supreme Court, Lexmark advocated, in the alternative, for a third approach––a categorical test permitting only direct competitors to sue for false advertising.
Justice Scalia, writing for a unanimous Court, rejected all three tests. Instead, he explained that the appropriate analytical framework for determining a party's standing to maintain an action for false advertising under the Lanham Act required the Court to determine, using traditional tools of statutory interpretation, whether a legislatively conferred cause of action encompassed a particular plaintiff's claim.
The Court held that to come within the zone of interest in a suit for false advertising under the Lanham Act, that plaintiff must allege (1) an injury to a commercial interest in reputation or sales, (2) that was proximately caused by violation of the statute.
Applying these principles to Static Control's false advertising claim, the Court concluded that Static Control came within the class of plaintiffs whom Congress authorized to sue under the Lanham Act. Static Control's claimed injuries—lost sales and damage to its business reputation––were injuries to precisely the sorts of commercial interests the Act protects. Static Control adequately alleged proximate causation by alleging that it designed, manufactured and sold microchips that were both (1) necessary for, and (2) had no other use than, refurbishing Lexmark toner cartridges. Because Static Control alleged Lexmark explicitly disparaged Static Control's own products, the harm to reputation "flow[ed] directly from the audience's belief in the disparaging statements."
The bottom line: Even if the companies are not direct competitors, if one company falsely disparages the products of another, proximately causing injury to its sales or business, the second company can sue the first company for unfair competition.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
