What factors should determine standing to sue for false advertising under the Lanham Act?

The U.S. Supreme Court has agreed to answer that question in a case from the 6th U.S. Circuit Court of Appeals involving a suit between Static Control Components Inc. (a maker of microchips for toner cartridges) and Lexmark, a laser printer manufacturer.

To impede third parties called “remanufacturers” from acquiring used Lexmark toner cartridges and refilling them with ink to resell at a lower cost, Lexmark added a patented microchip that disabled its cartridges when they ran out of toner. Static Control responded by creating a microchip to override Lexmark’s chip, which would allow a remanufacturer to refill and resell the cartridge. Lexmark then filed a copyright infringement suit against Static Control for violations relating to a source code. Static Control counterclaimed under federal and state antitrust and false advertising laws that Lexmark unlawfully excluded aftermarket competition, reduced competition, and increased prices, and that Lexmark falsely told remanufacturers that Static Control had infringed upon Lexmark’s patents.

A federal court judge dismissed the Static Control’s claim, holding that Static Control lacked standing to bring a claim under the Act. The 6th Circuit reversed, broadening the split among the federal appellate courts, which use different frameworks to determine standing pursuant to the Lanham Act.

The panel looked to its sister circuits for guidance and found three different standards. The 3rd, 5th, 8th, and 11th Circuits reference antitrust standing when considering the issue. Another group of courts – the 7th, 9th, and 10th Circuits – permits standing under the Act “only by an actual competitor making an unfair competition claim.”

The 2nd Circuit has adopted what it calls the “reasonable interest” approach, “finding that the claimant has standing if the claimant can demonstrate (1) a reasonable interest to be protected against the alleged false advertising and (2) a reasonable basis for believing that the interest is likely to be damaged by the alleged false advertising.”

The 6th Circuit broadened the three-way split among the jurisdictions by following the 2nd Circuit’s approach. “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. This is sufficient to state a claim under the Lanham Act.”

The Justices will hear oral argument on the case next term.

To read the 6th Circuit’s decision in Static Control v. Lexmark International, click here

To read Lexmark’s cert. petition to the U.S. Supreme Court, click here.

To read Static Control’s response brief in opposition to cert., click here.

Why it matters: The case presents the first opportunity for the Justices to weigh in on a false advertising Lanham Act suit and settle a three-way split among the federal appellate courts about who can bring claims under the Act. The decision regarding which of the three tests the Court will select – the multifactor analysis of antitrust law, the direct competitor standard, or the “reasonable interest” approach – will have a significant impact on potential plaintiffs. A reversal of the 6th Circuit’s decision could narrow standing and limit some parties from bringing suit under the Lanham Act.