A unanimous Supreme Court decision today portends increased Lanham Act unfair competition litigation by confirming that diverse market participants have standing to sue for false or misleading advertising under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). Any plaintiff alleging that such advertising proximately caused injury to commercial reputation or sales would likely fall within the statute's "zone of interests." This test means that such claims are not limited to so-called "direct competitors," nor to parties capable of pleading either a "reasonable interest" in protecting their trade from actionable advertising, or "prudential standing" as in antitrust law.
The case before the Supreme Court, Lexmark International, Inc. v. Static Control Components, Inc., No. 12-873, pitted printer manufacturer Lexmark against a manufacturer of toner and microchips used by third parties to assemble Lexmark printer-compatible replacement toner cartridges. Lexmark instituted suit, alleging various patent and copyright violations. Static Control counterclaimed, arguing that notices that Lexmark sent to other companies, warning that using Static Control products violated the law, constituted false advertising. The gravamen of Static Control's standing argument before the Court was that Lexmark viewed Static Control as a sufficient enough competitor to target it with false advertising, and that this was sufficient for Static Control's standing to assert claims under the Lanham Act, which provides remedies for falsely advertising about another party's product. The Court's decision, which is limited to holding that the zone of interests test is the proper rubric for assessing Section 43(a) standing, confirms that Static Control can now pursue its claim on the merits.
The Court's decision also underscores that a Section 43(a) plaintiff can surmount the risk that an alleged harm will be deemed too remote from a defendant's unlawful conduct for the claim to succeed. All commercial injuries from false advertising are in a sense derivative of injury to consumers, who are the ones deceived by purportedly false advertising. The Court's analysis of Lanham Act authorization for suits for commercial injury confirms that the "intervening" element of consumer deception is not fatal to showing causation. A plaintiff need only trace economic or reputational injury to a defendant's conduct, namely by showing that defendant's deception of consumers caused them to withhold trade from plaintiff. Applying this rubric to Static Control's allegations, the Court concluded that Static Control sufficiently pled a Section 43(a) cause of action: it alleged that Lexmark had disparaged its business and products by asserting that Static Control's business was illegal (the Court agreeing that the parties' not being direct competitors was irrelevant); and it adequately alleged proximate causation, inasmuch as it designed, manufactured, and sold microchips that were both necessary for, and useless other than for, the refurbishing of Lexmark toner cartridges.
The Court's decision may increase Section 43(a) litigation in both the near and long term. As a practical matter, the Court resolved a three-way circuit split, and counsel for parties to Lanham Act causes of action will now litigate these matters under the new zone of interests standard, rather than the multifactor "prudential standing" test (previously applied in the Third, Fifth, Eighth, and Eleventh Circuits), the "actual competitor" standard (previously applied in the Seventh, Ninth, and Tenth Circuits), or the "reasonable interests" test that the Sixth Circuit applied in its decision in the Lexmark litigation, relying on Second Circuit law.
Finally, the Court's application of the zone of interests test also means, as a substantive matter, that plaintiffs face a simplified pleading standard. First, are a plaintiff's alleged injuries the kind of commercial interests that the Lanham Act aims to protect - e.g., lost sales and injury to business reputation? Second, did defendant's allegedly false or misleading advertising proximately cause plaintiff's injuries? In the case of Static Control's allegations, the Court confirmed that diversion of sales to a direct competitor is not the only kind of injury for which Section 43(a) provides a remedy, such that disparagement can be actionable whether or not parties directly compete. The Court's opinion closes by observing that Static Control sufficiently alleged a basis for pursuing its claim, at which point it now must provide evidence sufficient to prove injury.
The Supreme Court's decision may be found here: