March 25, 2014

Supreme Court Decides Lexmark International, Inc. v. Static Control Components, Inc.

On March 25, 2014, the U.S. Supreme Court decided Lexmark International, Inc. v. Static Control Components, Inc., No. 12–873, holding that to come within the zone of interests under the Lanham Act and maintain a claim for false advertising, a plaintiff must allege an injury to a commercial interest in reputation or sales proximately caused by a defendant's misrepresentations. In reaching its result, the Court emphasized that traditional tools of statutory interpretation, rather than "prudential standing" considerations, provided the proper analytical framework.

Lexmark manufactures and sells laser printers designed to work with its own toner cartridges, each of which contains a microchip that disables the cartridge when it runs out of toner. The microchip must be replaced before the cartridge works again. Lexmark included the microchip in cartridges in an effort to prevent "remanufacturers" from refilling and refurbishing toner cartridges and then selling them in competition with Lexmark. Static Control sells to remanufacturers the components necessary to refill and refurbish toner cartridges. Static Control developed and sold to remanufacturers a microchip that emulates Lexmark's microchip, and Lexmark sued Static Control for copyright infringement. Static Control counterclaimed, alleging, among other things, false advertising under the Lanham Act, 15 U.S.C. §1125(a), based on allegedly false or misleading conduct and statements by Lexmark concerning the legality of refurbished cartridges. The district court dismissed Static Control's Lanham Act claim, holding that Static Control lacked "prudential standing." The Sixth Circuit reversed, adopting the Second Circuit's "reasonable-interest" test.

The Supreme Court affirmed, resolving a circuit split and holding that to "invoke the Lanham Act's cause of action for false advertising, a plaintiff must plead (and ultimately prove) an injury to a commercial interest in sales or business reputation proximately caused by the defendant's misrepresentations." The Court derived this formulation of standing after adopting and applying the "zone-of-interests" test, which inquires whether the plaintiff is a member of the class of persons to whom Congress has granted a right to sue under the substantive statute in question. Analyzing the unusually detailed statement of purpose found in the Lanham Act, the Court easily defined the zone of interest for false advertising claims in terms of harm to commercial interests in reputation or sales.

To keep the scope of Lanham Act claims in check, the Court insisted on a showing of proximate cause by the plaintiff: "a plaintiff suing under §1125(a) ordinarily must show economic or reputational injury flowing directly from the deception wrought by the defendant's advertising; and that that occurs when deception of consumers causes them to withhold trade from the plaintiff." Notwithstanding this formulation of the rule, the Court explained that (1) direct competition is not required for proximate cause, and (2) there need not be a direct link between consumer confusion and a plaintiff's injuries. If Lexmark's statements and conduct concerning the illegality of refurbished cartridges were in fact misleading or false, then both Static Control and the remanufacturers might directly and independently suffer injury as a result.

Justice Scalia delivered the decision for a unanimous Court.

Download the Opinion of the Court

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