U.S. Supreme Court Standardizes Standing Analysis for False-Advertising Claims Under the Lanham Act

U.S. Supreme Court Alert

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On March 25, 2014, the Supreme Court held that false-advertising claims brought under the Lanham Act are not limited to direct competitors of the allegedly false advertiser. Instead, the Act authorizes any person to bring an action for false advertising if he suffers an injury to a commercial interest in reputation or sales that flows directly from a false advertisement.

The case, Lexmark International v. Static Control Components, No. 12-873, arose when Lexmark sued Static Control, alleging patent and copyright infringement. Static Control makes toner and microchips used to fill third-party cartridges compatible with Lexmark printers, which compete with the cartridges Lexmark sells. As part of its opposition to Static Control’s business, Lexmark sent advertisements to the third-party cartridge manufacturers, advising them that it would be illegal to sell cartridges containing Static Control’s components. Static Control challenged that activity as false advertising in a counterclaim under the Lanham Act, 15 U.S.C. § 1125(a). Lexmark argued that Static Control could not bring a Lanham Act claim because only direct competitors of the defendant have standing to do so, and Static Control does not compete against Lexmark in the printer or cartridge market. Static Control responded that it had standing because Lexmark had directed its false statements at Static Control’s products.

At Lexmark’s urging, the district court applied a multifactor “prudential” standing analysis to hold that Static Control lacked standing under the Lanham Act. The district court reasoned that third-party cartridge manufacturers would be more direct plaintiffs, and that Static Control’s injury—derivative of alleged misstatements to those third-party manufacturers—was too remote to support liability.

On appeal, the Sixth Circuit reversed. It identified three different approaches used by sister circuits to determine Lanham Act standing and applied a so-called “reasonable-interest” approach. The court held that Static Control could bring a claim under the Lanham Act, because it alleged that Lexmark’s conduct harmed its business reputation.

The Supreme Court, in a unanimous opinion authored by Justice Scalia, held that Static Control falls within the class of plaintiffs Congress authorized to sue under the Lanham Act. The Court articulated two criteria for Lanham Act standing.

First, a plaintiff must fall within the statute’s zone of interests by alleging an injury to its commercial interest in its reputation. Second, the alleged injury must have been proximately caused by the defendant’s false advertising. The Court rejected a bright-line rule that would limit Lanham Act standing to direct competitors of the defendant, concluding that nothing in the statute so restricts the authorized cause of action.

The Supreme Court’s opinion resolves confusion among the federal courts of appeals on the issue of Lanham Act standing. In jurisdictions that had previously limited standing to direct competitors of the defendant, the ruling will expand the universe of false advertising plaintiffs bringing claims under the Lanham Act. In jurisdictions that employed multifactor balancing tests (including the Fifth and Eleventh Circuits), the ruling narrows and streamlines the inquiry, potentially limiting the plaintiff population. The Supreme Court’s establishment of a uniform, nationwide standard may reduce forum shopping.