A three-way circuit split has long clouded the issue of standing in Lanham Act false advertising cases. But on March 25, 2014, a unanimous Supreme Court announced the proper analytical framework for determining a party's standing to sue under 15 U.S.C. § 1125(a).
In Lexmark International, Inc. v. Static Control Components, Inc., the Court ruled that "a direct application of the zone-of-interests test and the proximate-cause requirement supplies the relevant limits on who may sue for false advertising under the Lanham Act."
Lexmark manufactures and sells laser printers and toner cartridges. Lexmark's only competition in the toner market comes from so-called "remanufacturers" who acquire, refurbish and sell used cartridges. Static Control Components, Inc. makes and sells the component parts necessary to remanufacture Lexmark toner cartridges.
Static Control sued Lexmark for false advertising, alleging that Lexmark (1) falsely advised cartridge remanufacturers that it was illegal to use Static Control's products to refurbish Lexmark cartridges, and (2) falsely misled consumers to believe that they are required by law to return Lexmark cartridges to Lexmark after a single use.
The question before the Court was whether Static Control "falls within the class of plaintiffs whom Congress authorized to sue under § 1125(a)."
The Court rejected each existing framework for analyzing standing—including the actual competitor test employed by the Seventh, Ninth and Tenth Circuits—in favor of a two-part inquiry.
First, a plaintiff must "fall within the zone of interests protected by the [Lanham Act]." In other words, "a plaintiff must allege an injury to a commercial interest in reputation or sales."
Second, a plaintiff must allege that its injuries "were proximately caused by violations of the statute." That is, a plaintiff "must show economic or reputational injury flowing directly from the deception wrought by the defendant's advertising." The Court noted that this "occurs when deception of consumers causes them to withhold trade from the plaintiff."
Applying this test, the Court determined that Static Control falls within the class of parties authorized to bring claims under Section 1125(a). The Court observed that "Static Control's alleged injuries—lost sales and damage to its business reputation—are injuries to precisely the sorts of commercial interests the Act protects."
Importantly, this opinion opens the door to new Section 1125(a) plaintiffs in the Seventh, Ninth and Tenth Circuits, where direct commercial competition is no longer a prerequisite for bringing suit.