25 March 2014

Law in Plain English: Lexmark International, Inc. v. Static Control Components, Inc.

This is one in a series of posts designed to describe court decisions in plain English. For more detail and background on the legal issues, see the link to the case below. For similar posts, click here.

SCOTUSblogLexmark International, Inc. v. Static Control Components, Inc.

Argument: Dec 3 2013 (Aud.)

BackgroundLexmark, a producer of laser printers and toner cartridges for its laser printers, developed microchips for both the toner cartridges and the printers so that Lexmark printers will reject any toner cartridges not containing a matching microchip. Static Control Components identified how to replicate the cartridge microchips. Lexmark then sued Static Control for copyright violations related to its source code in making the duplicate microchips. Static Control made a counterclaim under federal and state antitrust and false-advertising laws (including the Lanham Act). Lexmark successfully moved to dismiss all of Static Control's counterclaims. The Sixth Circuit affirmed the district court's dismissal of Static Control's federal antitrust claims, but reversed the dismissal of Static Control's claims under the Lanham Act and certain claims under state law.

Issue: The question before the Court is to determine the appropriate analytic framework for determining a party’s standing to maintain an action for false advertising under the Lanham Act. The three competing possibilities are: (1) the factors set forth in Associated General Contractors of California, Inc. v. California State Council of Carpenters as adopted by the Third, Fifth, Eighth, and Eleventh Circuits; (2) the categorical test, permitting suits only by an actual competitor, employed by the Seventh, Ninth, and Tenth Circuits; or (3) a version of the more expansive “reasonable interest” test, either as applied by the Sixth Circuit in this case or as applied by the Second Circuit in prior cases.

Holding: In a unanimous decision, the Supreme Court ruled that Static Control has adequately pleaded the elements of a Lanham Act cause of action for false advertising. The Court dismissed the three possibilities above and adopted a fourth test: the cause of action extends to plaintiffs who 1) fall with in the zone of interests protected by that statute and 2) whose injury was proximately caused by a violation of that statute. To come within the zone of interests in a suit for false advertising, a plaintiff must allege an injury to a commercial interest in reputation or sales. A plaintiff 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.
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