Two US Supreme Court cases decided this term could result in a substantial increase in the number of Lanham Act claims brought under that statute alleging “unfair competition” resulting from product labeling and marketing practices that are alleged to be false or misleading. For reasons discussed below, some of these cases could be filed against companies in industries that have historically not been subjected to many Lanham Act claims, including companies in the transportation, financial services, telecom, tobacco, and healthcare industries. The cases are:
Lexmark International, Inc. v. Static Control Components, Inc., No. 12-873, slip op. (March 25, 2014), in which the Supreme Court broadly construed the Lanham Act to permit lawsuits by all companies alleging injuries that were proximately caused by false or misleading advertising or promotion, even if the plaintiff was not a direct competitor of the defendant and suffered only “collateral damage.”
Pom Wonderful LLC v. Coca-Cola Co., No. 12–761, slip op. (June 12, 2014), the Court’s second Lanham Act case of the term, in which it eliminated a potential safe harbor from Lanham Act claims for companies in regulated industries who complied fully with applicable regulations regarding the labeling and marketing of their products.
Indirect “Proximate” Harm is Sufficient for Lanham Act Standing: The Supreme Court’s Lexmark International Decision. In Lexmark International, the Supreme Court resolved a circuit split regarding the proper test for determining whether a plaintiff has Lanham Act standing to challenge a company’s advertising or promotional activities. The case arose from a Lanham Act counterclaim filed by Static Control in response to Lexmark’s copyright infringement claims. Static Control manufactured replacement microchips needed in certain Lexmark toner cartridges for a refurbished cartridge to function. Static Control alleged that Lexmark violated the Lanham Act by misleading Lexmark cartridge remanufacturers who were purchasing microchips from Static Control and printer owners into believing that only Lexmark could legally replace the microchips in their cartridges.
In finding that Static Control had Lanham Act standing, the Court first held that it fell within the Lanham Act’s “zone of interests.” Turning to proximate causation, the Court held that standing was available where “the deception of consumers causes them to withhold trade from the plaintiff” and the plaintiff suffered harm as a result. The Court held that Static Control satisfied this test, notwithstanding that it allegedly suffered “collateral damage” because it did not compete directly with Lexmark.
Regulated Industries Lose “Preclusion” Safe-Harbor: The Pom Wonderful Decision. The Supreme Court recently weighed in on the hard-fought and closely-watched legal battle between Pom Wonderful, a pomegranate grower and juice supplier, and Coca-Cola over Coke’s prominent labeling of its juice-blend drink as “pomegranate blueberry,” although the beverage, in fact, contained miniscule amounts of each ingredient. The question presented was straightforward: whether Coca-Cola’s compliance with the Food, Drug, and Cosmetic Act (FDCA) in labeling its product insulated it from Lanham Act liability. In holding that it did not, the Court relied on the fact that neither statute expressly reflected Congress’s intent to allow companies to use FDCA compliance as a shield to Lanham Act liability, and that the statutes had co-existed for seventy years. The Court also relied on the fact that the focus of the statutes and the agencies tasked with enforcing them was different, observing that the purpose of the FDCA was to protect health and safety, while the Lanham Act was enacted to protect competition.
The Implications of Lexmark and Pom Wonderful Are Significant. By holding that Lanham Act standing is not limited to direct competitors, the Supreme Court made the Lanham Act available to all companies that can allege proximate harm resulting from a company’s false or misleading labeling, advertising or promotion, even if they do not compete with the defendant. Accordingly, a company vulnerable to such a claim could potentially be sued by any direct competitor, and also by a wholesaler or retailer that sells the competitor’s products, or, as in the case of Static Control, a supplier to the competitor, provided that the potential plaintiff can satisfy Lexmark’s proximate cause test.
At the same time, the implications of the Pom Wonderful decision for the food, beverage, pharmaceutical, and cosmetic industries will likely be significant. Yet, the decision’s impact will very likely extend well beyond industries regulated under the FDCA. Airlines, for example, are subject to regulations in the manner in which they advertise their fares and services. Yet, compliance with those regulations may not insulate them from Lanham Act liability. The same could be said for other transportation companies (railroads, passenger buses, trucking), as well as companies in a wide range of industries, including financial services, telecom, tobacco and healthcare.
Moreover, the impact of the case will also likely extend well beyond the marketing of consumer products because the Lanham Act potentially applies to all marketing activities, including business-to-business and even government sales. Even non-traditional, narrowly focused marketing activities – even a single letter – can fall within the Lanham Act’s scope. Accordingly, every company would be well advised scrutinize their marketing practices on an ongoing basis to ensure that they do not inadvertently expose the company to risks under the Lanham Act.