Supreme Court Clarifies False Advertising Standing

Unfair Competition Update

Date: April 02, 2014

The Supreme Court’s March 25, 2014 decision in Lexmark Int’l v. Static Control Components liberalizes the standing requirements for a false advertising lawsuit under the Lanham Act and makes clear that a company does not have to be a direct competitor to sue another company for false advertising.1

Background

The Court’s unanimous decision settles who has standing to bring a suit for false advertising under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). The Court rejected various tests previously applied by the circuit courts of appeal – antitrust standing, competitors-only and reasonable interest – and instead adopted a new test requiring a two-part inquiry. First, a company must “fall within the zone of interests” reached by the Lanham Act in a false advertising case, which is the protection of businesses against unfair competition. Second, a company must show injuries “proximately caused by the violation of the statute.”

Under this two-part test, a company will have standing to bring a claim if it can show “an injury to a commercial interest in reputation or in sales” and “economic or reputational injury” that flows directly from the defendant’s deceptive advertising. Although this is a broadened rule, it is not without limits; a company that has not been directly harmed by advertising will not have standing. The Court did not modify the long-held rule that individual consumers cannot file a false advertising claim under the Lanham Act.

In applying this test in Lexmark, the Court held that Static Controls, a manufacturer of components used by firms engaged in refurbishing toner cartridges for Lexmark printers, has standing under Section 43(a). Static Controls alleged in part that Lexmark falsely told toner cartridge remanufacturing companies that it would be illegal to use Static Controls’ components. Static Controls makes microchips that allow companies to refurbish Lexmark toner cartridges so they can be reused, and these companies compete with Lexmark for aftermarket sales of toner cartridges for Lexmark printers. The Court concluded that Static Controls satisfies the two-part test. Its alleged lost sales and damage to its business reputation are “injuries to precisely the sorts of commercial interests” protected by the Lanham Act, satisfying the zone-of-interest branch of the test. Because the injuries resulted directly from consumers’ belief in Lexmark’s allegedly disparaging statements, the proximate cause test to establish standing is satisfied.

Consequences for Business Advertising

The Court’s loosening of the standing test will likely mean that more business-against-business false advertising cases will be filed under the Lanham Act, and a company will need to weigh the impact of its advertising on companies outside the circle of its direct competitors. In preparing advertising for the marketplace, a company should consider its potential impact not just on competitors, but also on suppliers to competitors and on other firms whose sales could be adversely affected by false or deceptive statements. The lower hurdle for bringing a false advertising claim means heightened scrutiny will be needed in vetting advertising before publication.

FOR MORE INFORMATION

For more information on how your company may be impacted by the Court’s decision in Lexmark, please contact:

Jennifer S. Roach
216.566.5885
Jennifer.Roach@ThompsonHine.com

Matthew David Ridings
216.566.5561
Matt.Ridings@ThompsonHine.com

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